Why the depreciation shows different number

Forum|Forum|3 years ago
February 14, 2023
1 reply
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This is my first year that I converted primary home to rental.

The review page shows $5826, but the depreciation is $11402.

It seems the review page do the adjustment with the rental income. It adjusts deprecation + expenses + vehicle expenses = rental income. so, my first-year rental does not allow loss. why?

DianeW777

It depends. There are two factors that determine allowable loss.

First is 'active participation' - you must be sure to answer this question correctly with a 'Yes' in the rental activity if you make all the decisions about the rental, even if you have a property manager.
Second is income - Maximum special allowance. The maximum special allowance is:
- • $25,000 for single individuals and married individuals filing a joint return for the tax year,
- • $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and
- • $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified.
  - If your MAGI is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.

The depreciation for the first year of conversion does start in July and is calculated correctly ($11,402), using the 27.5 year recovery period.

If your income below the is over the threshold above for your filing status your loss will be suspended and carried forward.

IRS Publication 527

Use the Search (upper right) > type rentals > click the Jump to... link > Review Property Profile

Active participation

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huangnetianAuthor

My income is above the thresh, the loss will be carried over to next year. should the net income show negative number instead of 0. I have another rental property in Florida, it shows negative net income. Why is it different?

AbrahamT

Ok, so it seems like this just showing what your income/ loss is from the two properties but it does not necessarily mean that you can use the Florida loss against you nonpassive activity income. Check your 2 Schedule E's from the two properties and compare it to the 1040 Pg. 1 Line 8 coming from Sch 1 Line 5 to see what amount of the loss is being carried forward. Remember, the rule of disallowing the maximum allowance rules only apply to an individual who is considered an active participant in passive rental real estate activity which you described yourself as in the property relating to Dublin. Your status in Florida may be entirely different thus allowing for the loss deduction. See HERE under the category Special Allowance for Rental Real Estate Activities for more detail on this subject.

All the best!

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