Active-Passive and Passive-passive loses and the $25K deduction

[Buddy Holmes]

Help please in learning how passive losses can offset Cap Gains.

I watched Brandon Hall's great #45 Daily Smart Tax video but my Turbo Tax seems to have a different opinion.

Form 8582 calculates Passive loss Limitations.

I have rental homes with PM but active participation. Their net loss was $11,452

I have DSTs and LP with total passive participation. Their net loss was $29,319

Turbo Tax separated the two and both had net losses.

My AGI was low enough to allow up to $21,805 in deduction, but…

The rental homes loss was less than the passive-passive loss so it was used to compare to the $21805 to reduce income by the lower value of $11,454 which was placed on the 1040

Part III goes on to calculate “Total Losses Allowed”

It sums the net income of the active and passive, passive activities on Line 10

Then Line 10 adds this to Line 9 which was the overall net of only the smaller active passive loss. It call this the “TOTAL losses Allowed” and to see instructions on how to report on your 1040? Turbo Tax evidently didn’t understand the instructions either because I can not find where it is used. Instructions say “use parts IV through IX and related instructions…” First I don’t have a Part IX on my Form 8582

Looks like the $29,319 will be carried over to next year. But why can't is get my full $21,805 deduction this year??

Cheers,

Buddy

[Michael Plaks]

@Buddy Holmes

I don't know your entire situation, so this is only a guess. In order to use the $25k passive loss allowance that you're referring to (partially phased out in your case), your K-1s need to have "active participation."  For active participation, you must own 10% of the entity that issues K-1s, and you probably don't.