Schedule E (Passive losses) -> 1040 (personal income)?

[Josh Smith]

Hi

I recently had my 2022 taxes prepared (not yet filed) from a firm and I noticed that they took line 26 of Schedule E “Total rental real estate and royalty income or (loss)”, which is say -$5,000 (notice the minus/negative) and placed that on Form 1040, Schedule 1, Part 1, Line 5 “Rental real estate, royalties, partnerships, S Corporations, trusts, etc. Attach Schedule E”. For what it’s worth, In form 1040, Schedule 1, Part 1 Line 1, I also had a state income tax refund of $3,000. So basically these two 1040 form 1 items, put together transferred a net negative $2,000 into my Form 1040 line 8 “Other income from Schedule 1, line 10”.

So basically I was able to transfer my passive rental loss of $5000 into my 1040…but I always thought 1040 and rental/passive were separate buckets? I have not sold the rental this year. This is not the first year, I have had this rental and in previous years filed tax returns, I have not done this transfer of passive Schedule E loss -> 1040. I asked the tax preparer why they have done so this year and they just said that the computer automatically figures this out..which I don’t understand. I have used the same firm since many years but the actual tax preparer changes every year.

Any thoughts?

Thanks!

[Nate Meeker]

@Josh Smith - How much are you paying for that poor explanation received?

You can deduct up to $25,000 in passive losses (Rentals) against your ordinary income (W-2) and other active business income if your modified adjusted gross income (MAGI) is $100,000 or less.

This deduction phases out $1 for every $2 of MAGI above $100,000 until $150,000 when it is completely phased out. These numbers are for married filing joint couples. For single individuals it phases out $1 for every $2 of MAGI above $50,000 until $75,000.