Limiting Loss on Vacation Home

[freshy70]

How do you get the system to limit a rental loss on a vacation home that is considered a residence? Income less expenses including deprecation results in a net loss on Schedule E, but the property was used over 14 days or over 10% of rental days. My understanding is expenses are limited to income and the rest are carried over to future years.

[TaxGuyBill · Accepted solution]

I don't use ProConnect, so maybe this won't help, but ...

Are all of the expenses being used against the income to create the loss?  Or are just certain expenses being allowed to create the loss?

My point is that certain expenses ARE allowed to create an allowable loss.  If the total of rental-specific expenses (Advertising, Commissions, Management Fees, and other expenses) and the rental portion of Mortgage Interest and Real Estate Tax are greater than income, they can create an allowable loss.

If that doesn't solve it, hopefully someone that used ProConnect (or maybe Lacerte) will come by with an idea for what to do.

[freshy70]

I think you answered the question. I misunderstood the limitation. It looks like ProConnect is allowing all rental specific expenses - cleaning, management fees, utilities, insurance, interest and taxes. I've entered interest and taxes only for the business use portion and put the rest on Schedule A. 

After seeing your message I checked and I see ProConnect has automatically carried over vacation home depreciation to the following year. So it seems all the other expenses are allowed to create a loss, but depreciation carries over.

[TaxGuyBill]

I don't think utilities and insurance should allow a loss (they are not rental-specific and are not part of the separately allowed mortgage interest and real estate tax).  Those should be part of the Vacation Home carryover.

[Accountant-Man]

IDK how Pro Connect works, but in Pro Series you enter everything on Sch E, enter the days which will disallow stuff, and the non-rental Mtge Int and RE taxes automatically go to Sch A. 

You don't need to calculate them.

And the Int & Taxes can create a loss and be allowed, but the rest are deferred until future possible Income allows them.

And that loss would NOT be passive.

[abctax55]

Lacerte works the same way; I would bet PTO does too.  IF all the info is entered correctly (days of personal use vs rental use, as well as correct depreciation method selected).

[freshy70]

After you wrote this I went back to play around with how I could get these expenses limited. What I did wasn't intuitive but it seems to accomplish what I wanted. 

I checked the box that says "Allocate all mortgage interest, real estate taxes, and mortgage insurance premiums (if applicable) as excess when claiming the standard deduction (Pub. 527 Worksheet 5-1)"

Once I did that the effect was that ProConnect made a negative expense adjustment called Disallowed Vac. Home Exp. to reduce net profit to zero but not allow a loss.

Now I have 2 carryovers to 2025 - the disallowed vacation home expenses and disallowed vacation home depreciation with a break even schedule E for that property.

Doesn't make sense to me what checking that box did this, but he is taking the standard deduction so it seems right.

[Accountant-Man]

So that is a question which is not under the IRC Section 280A limitation, but rather "excess" for the Sch A limits for RE tax and Mtge Int & Ins Premiums.

"excess when claiming the standard deduction (Pub. 527 Worksheet 5-1"

I assume then that the rental income was reduced by the other business expenses(insurance, supplies, repairs, etc) and those allocations reduced rental income to zero because they cannot create a loss. The remainder of those expenses and the disallowed depreciation(which is utilized last under 280A) are carried forward to be used against future rental income ONLY. They can only be used against future rental income. They are DEFERRED, not SUSPENDED. Identically like deferred Home Office expenses.

[Joni T EA]

There should be a place to mark it as self rental.  

[sjrcpa]

Vacation home and self rental are not the same thing.