Vacation rental real estate

[Ruth1]

Forgive me if this is my second overture. I'm not certain the first went through before my PC started going berserk.

TP has a rental vacation home which in the past the prior accountant listed as vacation property rented 365 days. The special allowance applied and they were allotted their portion of current and prior loss on SCH 1.

This year, TP has used the home 42 personal and rented only 7 days. (we have opted not to use the seven day rule at this juncture) making it not a vacation property but a single residence.

The entire loss for the current SCH E  plus their proportionate share of prior year losses are being deducted in full on Sch1. This makes no sense to me. I would think I'd be limited. Can someone weigh in and explain?   

[TaxGuyBill]

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@Ruth1 wrote:

This year, TP has used the home 42 personal and rented only 7 days. (we have opted not to use the seven day rule at this juncture) making it not a vacation property but a single residence.

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Do you mean the 14/15 day rule?  What makes you think that is an option?  Less than 15 days means no income or deductions are counted.   As you say, it is not a vacation rental property.

So I don't think it is considered a rental property at all (and a non-rental property won't use the passive losses).

[Ruth1]

This property has been a rental for a dozen years and continues to be so. Its just Covid that made the rental less than this past year.

I did think that you had a an option to continue as a rental as opposed to not acknowledging the income /expense under 14 days.  

My real question is:

I input the property as with personal days of 42 and rental days of 7 and am wondering why I am getting the full loss from the SCH E plus carryovers.  I generally trust what Lacerte does so I am trying to figure this piece out.  Why is the software calculating the full loss plus C/O and allowing it on SCH 1?

[TaxGuyBill]

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@Ruth1 wrote:

Its just Covid that made the rental less than this past year.

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If you are preparing the 2019 tax return, COVID has nothing to do with it.  🙂

Sorry for tangent, but now back to your original question:

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@Ruth1 wrote:

I input the property as with personal days of 42 and rental days of 7 and am wondering why I am getting the full loss from the SCH E plus carryovers. 

Why is the software calculating the full loss plus C/O and allowing it on SCH 1?

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The high personal use changes the classification to a non-passive activity.  If personal use was over the greater of 14 days or 10% of the rental days, it is considered as a "residence" and triggers it to be non-passive.  That is why it is allowing the current year losses.

As for the previous year losses, let's take a step back.  Are the carryover "Vacation Home" carryovers (which happens if it is a "residence" of the taxpayer, see previous paragraph) or, are they Passive Loss Carryovers (which happens when the home is NOT considered a "residence" by the taxpayer).  Can you clarify the situation?  

Back to my original comment that it should not be treated as a rental at all:  Section 280A(g):

(g) Special rule for certain rental use

Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—

(1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and

(2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.

https://www.law.cornell.edu/uscode/text/26/280A#g

[Ruth1 · Accepted solution]

Thank you kindly.