Rental Income Loss on one property not offsetting the profit of another

[Anonymous]

Hi all,

I was filling in rental property information in Turbotax 2021. I have property A which posted a profit and a property B which posted a considerably larger loss.

I noticed that on Schedule E, the Total Income or Losses (line 26) is reported as the profit of A. I was very surprised by this. I am an active participant in both properties. I knew that if AGI is > 150k, we cannot deduct passive losses from ordinary income but the instructions on Schedule E and Form 8582 seem to imply that losses from one property can only be used to offset income from that property. Is this true? 

[Anonymous_]

Which type of property is Property B?

Are your losses from Property B limited? Check Line 22 on Schedule E.

Under normal circumstances, net losses should offset net income.

[Anonymous]

The properties are like-kind (Type 1). The only difference is that A was converted from personal to rental in 2021. Indeed, the losses for B are zeroed at line 22 and I am trying to figure out why. I looked at Form 8582 and I now realize that A is not included at all. The income and losses both should be listed there but I only see the loss from B. Since the income from A is not counted (income is 0), no additional loss is allowed so all loss from B is discounted.

I think you are on the right track, for whatever reason, TurboTax is not considering A as something that needs to exist on 8582. The reason could be the rental conversion in 2021. I will dig deeper.

[Anonymous]

Found out the reason. Ah you gotta love how complicated this is....

I did two mistakes and both because I did not read the instructions carefully:

- When entering property A (the one I converted), I put down the personal use days as the number of days that I lived there as a primary residence. For some reason, this completely removed this property from 8582. Turbotax explicitly states that personal use days _before_ the property was rented should not be entered. Once I changed this to 0, all losses were counted. Except....

- I also did not prorate my mortgage interest and property tax since I thought TT would do that for me. Once I did the change above, TT counted the entire expense towards rental and calculated a loss for A. I had to put the manually prorated versions so it can correctly calculate the profit for A.

Once both of these were fixed, I can now see B's loss offsetting the income from A. Hopefully, this will help others as well.