Why net loss rental could impact the Taxable income

[weiwuwei001]

I have a net loss rental income in 2021, say -$10K (for property A $20K rental income and $30K expenses including depreciation), the 1040 line 15 is $500k

however, I found that if I set the income to $10, my taxable income in 1040 line 15 will become  $480,010, how could this happen? I asked Turbotax live, and the CPA explained to me it is because that I have over $150k income so all the rental expenses are not deductible.  Which doesn't make sense and didn't happen to me last year.

One thing might be helpful is I have sold another property B for a long term capital gain of $150K, I found this is the root cause, but I don't understand why it would affect my other properties' tax situation if they are net loss. Somehow Turbotax thought all my 3 houses are sold.  It is highly possible that this is a bug in Turbotax.

Is this a bug in Turbotax?

Any help is appreciated!

[Mike9241]

are you a real estate professional?

if you are not a professional the net losses are passive.  if your adjusted gross income is over $150,000 no net passive real estate losses are allowed. notice the word "net". it's not that the expenses aren't allowed and the rental income is taxed rather the net loss is not allowed.

don't know what happened in 2020 

look at form 8582 where the allowed and disallowed passive losses are calculated.

[weiwuwei001]

No, I am not a professional and my AGI > 150K. I am not trying to offset my AGI, just want to use the rental expenses of the same property to offset the rental income so I don't need to pay tax for the rental income.

I realized one thing is I sold another property for a gain of $150K in 2021, but I still cannot understand why that would make my other property's rental income becomes taxable income when their net is negative.

[GeorgeM777]

To follow-up on the previous post from @Mike9241, does your Schedule E reflect a rental property loss?  And does Form 8582, line 1b reflect the loss from your rental property for this year?

@weiwuwei001

[weiwuwei001]

Yes, in Schedule E line 22, deductible rental real estate loss is negative -43921. But in passive loss carryovers G, it shows -42562 of schedule E suspended loss.

in form 8582,

1a: 155, 532 (this is the rental that i have been sold and this aligned with the profits)

1b: -2219

1c -65530

d: 87783