NOL Net Operating Loss for Rental Properties
I own 2 rental properties which generated losses in years 1,2 and 4 of existence.
Year 1 was 2017 which I filed an incorrect tax return on. I am getting reading to submit a corrected return for 2017.
I have not filed taxes from 2018 thru 2022 because I knew I would not have any taxable income. I am preparing 2018 – 2022 returns now.
I believe I am entitled to NOLs after reading IRS publication 536 on Net Operating Losses for Individuals.
Can I carry any of the NOL’s back to 2016 (I was a w-2 employee back then)? Or should I just carry the NOLs forward at this point?
@burgerguy14 wrote:I believe I am entitled to NOLs after reading IRS publication 536 on Net Operating Losses for Individuals.
Publication 536 does mention real estate losses but without any specificity.
Based upon a post you made in another thread, you do not provide "substantial services to your tenants", which would essentially permit filing on Schedule C which, in turn, could create an NOL.
Further, it does not appear as if you are a real estate dealer (e.g., your business is buying and selling real estate), which would, also, permit filing on Schedule C which, in turn, could create an NOL.
Beyond the aforementioned, you would have to qualify as a real estate professional who materially participates in your rental activities in order for the losses to be considered nonpassive.
See https://www.irs.gov/publications/p527#en_US_2022_publink1000234059
Note that whenever you read something on the order of "rental qualifies as a trade or business" around here, they could very well be referring to being treated as a trade or business for the purposes of the QBI deduction.
I am going to page @AmeliesUncle and @Mike9241 for further input.
@burgerguy14 seek professional help. in case where the losses would be passive, if your AGI was low enough, an amount up to $25,000, would be available to offset other income. your problem is by not filing timely returns or amended returns for certain years those losses may be permanently lost.
I agree with @Mike9241; it's more likely you would have a loss eligible for the SDA (up to $25,000) which you could use to offset other income.
However, since you mentioned little (or no) income, you might not be able to take advantage of the SDA. As a result, the loss would be carried forward as a passive loss.
Eventually, you may have passive income which could be offset by the accumulated passive losses or you could use the suspended passive losses to offset gain when you sell the property (the sale could actually result in an NOL).
I read thru the instructions on 2017 & 2018 Net Operating losses (IRS Pub 536). It looks like I've missed the deadlines for both years. Based on what I've read I can only carry these losses forward. Which is unfortunate b/c I was in a much higher tax bracket for the years I would have been able to carry back.
I've contacted a CPA and I'm waiting to hear back. Maybe there are some work arounds or leniencies granted. Doubtful.
NOL Year | Carryback year | 1040-x deadline to carry back |
2017 | 2015 – p536 says only back 2 years | 4/15/2021 |
2018 | 2013 – CARES Act allows 5 year carry back | 4/15/2022 |
Wait until you hear from your CPA. I don't believe we're going to be able to convince you that you don't have an NOL.
I'm fine taking it as a passive loss. But when I work through TurboTax, I don't see a passive loss carrying over to the next year. But at the end of each TT "Walk thru", TurboTax says "it looks like you have a NOL". And to manually calculate the NOL and enter in the appropriate form.
Maybe I'm missing a step when I go through TurboTax???
Thanks.
You are correct, and you are not missing anything. It's simply that TurboTax tends to throw that message if your AGI is negative. That is actually the program making an attempt to alert you to the fact that you should check and see if you have an NOL (using the NOL worksheet).
I used the NOL worksheet, and it shows I have NOL 2017 & 2018. No NOL for 2019-2021. And a small NOL for 2022.
I understand, but you can't use your net rental losses as part of that equation unless you provide substantial services to your renters or you are a real estate dealer.
while passive losses automatically carry forward the rules for NOL are different. For the years involved when the loss incurred you had to make an affirmative election on a timely filed return to carryforward the NOL. failing this the NOL could only be carried back.
@Mike9241 Agreed - I am in quite a pickle. I did not choose to waive my carryback in a timely manner for 2017 & 2018. B/c I did not file the waiver, I cannot waive the carryback period. And I am not eligible for the carryback period. Kind of a Catch-22.
I'm fine using passive losses and carrying them over but it doesn't seem to work for me.
Here's a Form 1040 illustration:
Interest and dividends : 11,000
Capital Gains/loss: -3000
Rental real estate: -21,500
AGI: -13500
Itemized deduction: 37,000
My Itemized deductions wipe out all of my income. 11k - 37k = -26k
The real estate losses were not needed to decrease my tax bill. There is no carryover of my real estate losses. to the next year. Maybe I'm missing something here. Like I forgot to click on a checkbox.
(The capital gains/loss doesn't actually get used and gets carried over to the next year).
@burgerguy14 wrote:(The capital gains/loss doesn't actually get used and gets carried over to the next year).
Your real estate losses should also not actually get used but carried over to the next tax year (as passive losses) unless certain criteria are met.
@Anonymous_ Ok that's a relief. I must be doing something wrong when going through the interview questions. Or maybe I need to manually carry them over.??
For example, indicating you materially participated as a real estate professional or something similar during the interview process.
I'm not sure because I can't see your return but under normal circumstances, you would simply have passive loss carryovers.
I check off ACTIVE participant. Not material. See attached.
That's fine and is most likely the proper and appropriate way for your purposes.
However, where are you seeing the real estate loss (which form or schedule) and do you have Form 8582 in your tax package?
@Anonymous_ there are no Form 8582s in my tax package.
I see the loss on Schedule E and then on Schedule 1.
If you reported on Schedule E, checked Active Participation in the program, have a negative AGI (with a negative figure for your real estate activity), and no 8582, it's almost certainly a result of the special allowance (up to $25,000) for active participation.
See https://www.irs.gov/publications/p527#en_US_2022_publink1000219124
Also note:
Form 8582 not required.
Don’t complete Form 8582 if you meet all of the following conditions.
Your only passive activities were rental real estate activities in which you actively participated.
Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year).
If married filing separately, you lived apart from your spouse all year.
You have no prior year unallowed losses from these (or any other passive) activities.
You have no current or prior year unallowed credits from passive activities.
Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year).
You don’t hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust.
If you meet all of the conditions listed above, your rental real estate activities aren’t limited by the passive activity rules and you don’t have to complete Form 8582. On lines 23a through 23e of your Schedule E, enter the applicable amounts.
Can the foregoing scenario result in an NOL? Under the circumstances set forth, the loss is not subject to the passive activity rules?
I've never run into a scenario where a residential rental property owner with a MAGI of, for example, $90,000 has, for example, a $20,000 net loss on rental properties.
@Anonymous_ wrote:
Can the foregoing scenario result in an NOL? Under the circumstances set forth, the loss is not subject to the passive activity rules?
I'm a bit lost on exactly where this conversation has gone, but ...
I've seen you say that the $25,000 real estate loss can't create a NOL, but I'm not familiar with that rule.
§469 allows the loss. But I'm not familiar enough with the detail of NOLs to positively know how the interaction works.
If you are going with the thought that the rental is not a "trade or business" (it is a "nonbusiness deduction" and therefore can't create a NOL), I don't know. For some purposes, a non-§162 passive rental is considered as a "trade or business" (or example, §1231 gain/losses, and is reported on 4797, and a loss from the sale of a rental is not subject to the $3000 limit). But in other cases it is not. I'm not sure how it applies to NOLs.
@AmeliesUncle wrote:
I've seen you say that the $25,000 real estate loss can't create a NOL, but I'm not familiar with that rule.
I've just never experienced the special allowance for active participation being applied where the MAGI was $100,000 or less and that created a scenario where the AGI went negative.
Considering the language I quoted from the IRS publication, it appears as if a loss in that given scenario is not considered to be a passive loss.
Yeah, my first inclination is that it would be a NOL.
If it is a NOL, then the losses for 2017 and 2018 are lost because they were not carried back (assuming the carry back would have absorbed the NOL).
@AmeliesUncle wrote:If it is a NOL, then the losses for 2017 and 2018 are lost because they were not carried back (assuming the carry back would have absorbed the NOL).
Exactly! I think @Mike9241 might have pointed that out earlier so I suppose it's moot at this point.