TurboTax, Schedule C, Wrong Federal Refund/Material Participation

[Alik Levin]

Dear all!

Hope your tax season going well.

I am using TurboTax Self-Employed online to file my day job's W-2 and rental business taxes. I manage my properties through single member LLC.

When I am at the Schedule C the losses I incurred with rentals reflect on overall Federal Refund, effectively writing off my passive income on my active income, which I believe is wrong.

The only way to calculate Federal Refund correctly, which is avoid taking losses from passive income, is to check the following option:

• I did not actively participate in the operation of this business.

Which is incorrect in my view, since one of the tests is "Perform all the work, even if you work fewer than 100 hours." but all the work performed by us - me and my wife. We don't outsource nothing.

So I have two options:

1. Report incorrectly and take losses from passive income - which I think plain wrong.
2. Claim I don't materially participate in my business - which is just as wrong.

I was on the phone w/Intuit support including first tier and then their CPA, and that was fruitless. One of the advise of the CPA was "why don't you want to take the losses..." or "file on Schedule E" or "I am going to send you link to download another TurobTax edition." or other random suggestion.

Any one hit similar situation? If so, how did you get past it?

As a side note, I would like to to record this year loss so I could write it off for income of this year when I file it in 2018. When I tick the "I did not actively participate..." the losses are zeroed, not a good sign.

Any help much appreciated.

Thank you

-Alik

[Steven Hamilton II]

I can tell you exactly what the issue is. You run all of your income and expenses through yoru Single Member LLC. Does it hold the title to the properties? The income and expenses should all be reported on Schedule E. The only thing you would report on Schedule C is if you had a management company and and used it to report what you kept for management expenses such as the PM fee you in essence charged yourself, miles as a PM, etc.

I personally love representing TT clients in audits. I deal with a lot of real estate professionals and investors.  9 out of 10 returns I see prepared on TT have often a significant error. And the response I hear is "but turbotax didn't tell me"