Excess Business Loss Limitation Inactive on CA Return. Please help!

[wyzeadvisor]

Good morning everyone,

Here's my case:

In 2021, my clients had a rental loss of 900k. She qualifies as a real estate professional and he's working full-time. Thus, the loss becomes active rather than passive. Because of Section 461 (l), the amount of losses they can deduct on their federal return is capped at 524k (MFJ).

However, for the CA return, ProConnect adjusts and add the difference to their AGI. Therefore, it lets them deduct the full amount of their rental loss.

I'm not sure if it is a system glitch in ProConnect. Do you guys think it is right?

Best

[George4Tacks]

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@wyzeadvisor wrote:

Good morning everyone,

Here's my case:

In 2021, my clients had a rental loss of 900k. She qualifies as a real estate professional and he's working full-time. Thus, the loss becomes active rather than passive. Because of Section 461 (l), the amount of losses they can deduct on their federal return is capped at 524k (MFJ).

However, for the CA return, ProConnect adjusts and add the difference to their AGI. Therefore, it lets them deduct the full amount of their rental loss.

I'm not sure if it is a system glitch in ProConnect. Do you guys think it is right?

Best

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Isn't the adjustment basically disallowing the rental loss? CA does not recognize the RE Professional provisions on the fed. 

I do not see what you seem to be describing. CA line 5 adds back all of the loss.