Massive losses, no deduction. Can a CPA please say it ain't so?

Question

In 2023 my five properties across two single-member LLC's had 7 tenants just decide not to pay rent, and 3 roofs had to be replaced. Thank goodness for tax deductions, right? Before I was in real estate my business just bought stuff and sold it for more, so I know losses from a single-member LLC lower your AGI. Right?

Wrong. I KNOW. It goes against everything our books and meetings and articles and gurus say. But TurboTax won't move my losses from Schedule E to Federal Taxes. They say rental income is Passive and therefore ineligible. I say depreciation, travel, and auto expenses aren't passive and those should at least count for something.

Have I truly been screwed here? Can I at least somehow carry the loss over to future years so I won't get taxed on future income?

Michael Plaks · Answer

@Aaron Rosenberg

Not screwed. Misled.

You cannot take them this year, but they are not wasted. They will be useful eventually, when you sell one of the properties or when you have passive income. Or when you quit your high-paying W2 job and become a full-time investor.

Of course, I had to make assumptions: you're single, work W2 job that pays you over $150k, and your properties are long-term rentals.

Resale business is taxed completely differently, and you're not supposed to have losses in resale actually.

Randall Tannen · Answer

You’re running into passive loss limitations. The losses are not lost - they’re suspended and carried forward to future years.

Michael Plaks · Answer

@Aaron Rosenberg

From what you described, our guesses are correct, and your real estate losses cannot offset your W2 losses in the current year. Eventually, in the future - yes, see my earlier response.

No CPA can override these IRS rules, there are no loopholes around it when you have two full-time W2 jobs in the family, except with some STR (AirBnB) investments.

Also, no CPA cannot respond to your request for help. It is strictly prohibited by BiggerPockets rules, we cannot offer our services, publicly or privately (although some people break these rules, but it's up to them). You have to select the people you want to work with yourself and initiate the contact. But once again - there will not be "big cash prize" for you, no miracles in your situation, unless we are missing some big piece that you did not disclose.

Kelly O'Keefe · Answer

@Aaron Rosenberg unsurprisingly, @Michael Plaks is entirely right, the losses are not gone. I read this post and also assumed that you are a high W2 earner. In my opinion, if you are making more than 150k and have five properties you could benefit from working with a CPA. Turbo tax is a great program, but it seems like you are at the stage where most investors need a bit more.

Aaron Rosenberg · Answer

Thank you Michael, and Alex, and Zachary, and Kelly. Sounds like I should provide some details. The W2 income is high through marriage; it is two W2s and a child deduction.

With all of that info entered into TurboTax I started putting in the info from 5 properties onto Schedule E. Normally Turbo Tax shows you how each line entry affects your tax return, numbers on top of the screen bouncing up and down. This year: nothing. No info from Schedule E had any affect.

SO. If you know any way I can get these deductions applied to this year or what I need to do to move the losses to next year, please let me know.

It may be true that it's time for a CPA and we have an excellent way to find that out, right here, right now: Which CPA here would take me as a client? Easy fix, right? I send you two W2s and two Schedule E's, 2 hours of data entry, big cash prize for both of us. Who's in?

Account Closed · Answer

As Michael mentions above, there are two DIFFERENT participation tests for REPS and STR "loophole". I would need to know more about your other sources of income but assuming its a w2 you cannot offset that income with the losses you mentioned.

Christie Gahan · Answer

Aaron: You need People! Actual people that can strategize and trouble shoot.

Chris Seveney · Answer

@Aaron Rosenberg

This is correct. I have over $250k in carry over losses which will get reported on form 8582 of your return.

Sean K. · Answer

Before filing the tax return can you download your returns forms from turbo tax?

In one of the forms you should see a list of unallowed losses that you can carry over for next year until you have a passive income you can offset this losses.

Massive losses, no deduction. Can a CPA please say it ain't so?

Massive losses, no deduction. Can a CPA please say it ain't so?

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