Oversimplified Cost Seg Example

[Eric Williams]

Let's say a rental property gets 12k in rental income, passive.

Cost seg gets 50k, resulting in passive activity loss of around 38k.

The amount of passive losses carries from the Sch E to the 8582 to determine the loss allowed.

In this case I assume no other passive activities and no active participation exception.

In this case the amount paid for the cost seg is worthless and may be for several years, especially considering rent may stay stable while other expenses have not been accounted for which add to the depreciation carryforward and add to the chance of limitation (in this very over simplified example).

No losses are allowed on Schedule E, which flows to Schedule 1, to the front page of the 1040.

Again, just a simple demonstration of the flow of the return.