Passive Active Loss and W2 Income

3 Replies

Hello BP Community, I sent the email below to Mark Kohler to see if he might be able to answer this during his weekly blog but also wanted to post in the Forum for additional feedback. I know this topic has been covered in previous posts but there are some specific details I have not been able to get clarification on from my CPA.

 I have read through various articles including the IRS Pub 925 on PAL (https://www.irs.gov/publications/p925), (https://thismatter.com/money/t...) as well as the discussion in  Mark's book what your CPS isn't telling you.  

My partner and I are 50/50 members in our LLC that holds our investment/rental properties. Both my partner and I are W2 income earners and my spouse is a Real Estate Agent and his wife was but no longer has her license but could get it if necessary. Both spouses appear to meet the real estate professional test of 750 hours of real estate activity during the year and their primary activity is real estate (according to Mark's book you don't need to be a licensed RE Agent). My partner and I are actively involved in the day to management of the properties and contractors and my partners spouse handles the property management administration and my spouse and I handle the deal finding work along with a local realtor in the market we invest in. Question is:

  • In order to take the passive loss against our W2 incomes do our spouses need to be members in the LLC? If so, will we only be able to deduct the losses based on their percentage of interest in the LLC (i.e if the each have 45% ownership than we can only take 45% of the passive losses against each or our W2 incomes)?

Thanks Paul

Just wanted to see if anyone in the BP forum has had experience with the above post.  Thanks

@Paul Mezzetti

Has your accountant thought about creating a c Corp structure within your LLC so you can possibly take a 280A dedication as well? That does not directly answer your question but it may help.

Remember your spouses won’t have control of the asset unless they are in there now when you die, absent certain trust documents in place.

I’m not an accountant- but I have to work with them constantly. I would ask a different accountant- get three different opinions.

Kathryn,

I will check with my accountant on the C Corp.  I have a trust setup so good there.  Thanks

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