How to generate the reconciliation on Line 43 on Schedule E for a real estate professional who meets the qualification to take losses and not as disallowed passive loss?

[vivianl78]

How to generate the reconciliation on Line 43 on Schedule E for a real estate professional who meets the qualification to take losses and not as disallowed passive loss?

I have already checked "Real Estate Professional" box and marked as "Nonpassive activity".  But losses still calculated as passive losses. Can someone please help?

Per Sec. 469(c)(7)B), real estate professional who materially participate in real property trades or business will not be subject to the rule where rental activities are treated as passive.

[Terry53029]

Did you also mark the "material participates" box

[vivianl78]

It looks like the “Nonpassive activity” box is for martially participated. And the reconciliation on Line 43 on Schedule E for real estate professional calculated just fine. But my client had Nonpassive loss from previous year and I am not sure where to enter the Nonpassive loss carryforward in ProConnect. Do you  know how to report the prior year Nonpassive loss carryforward for a real estate professional on 1040? Thank you!

[George4Tacks]

How was this non passive loss carryover generated? Was the client not a real estate professional in prior years? If they were, how is it that losses were not fully used? How do you know how much these losses were? Where did they show on the prior year return?

I am confused! Please help me to understand this situation. 

[vivianl78]

The client was a real estate professional. They bought a piece real estate which they spent a lot of time and money on repair while collecting rent. There was a large rental loss. The rental loss was so large that their ordinary income and other income was not enough to offset the loss. (the loss was nonpassive which can be used to lower their ordinary income because they are real estate professional and materially participated). I used ProSeries last year. In last year’s return, there was NOL in the Carryover Worksheet.

The only place I think the NOL should be reported is under “Income” then under “Net Operating Loss” in the “Federal Net Operating Loss” screen in ProConnect.

I am sorry for the confusion. I hope this makes sense. Please let me know what you think. Thank you.

[George4Tacks · Accepted solution]

Did you elect to NOT carry the NOL back in the prior year? Without the election to waive the carryback, you would need to carry any NOL back 5 years. https://www.irs.gov/pub/irs-pdf/p536.pdf 

If there truly is a remaining NOL, you would need to enter the carryovers by year in Income > Federal Net Operating Loss and also for the state (which is likely a different number) 

[PhoebeRoberts]

And also for AMT, which may or may not be a different number.

[vivianl78]

Thank you so much for your help!

[vivianl78]

I did not attach the statement to waive the carryback last year since the NOL was from 2019. Per the Form 1045 instruction, it is now too late to file the amended return to attach the statement to waive the carryback.  

However, on the 1040x 2019 instruction (https://www.irs.gov/pub/irs-prior/i1040x--2019.pdf) page 6, “Net operating losses after 2017. Beginning with 2018 returns, the Tax Cuts and Jobs Tax (TCJA), section 13302, eliminated the option for most taxpayers to carry back a net operating loss (NOL). Most taxpayers can only carry NOLs arising from tax years ending after 2017 to later year.”

I would prefer carryover the NOL to future years instead.

Can anyone help me understand this? Thank you!

[Terry53029]

The rules were changed again 🙄. New rules for NOL carrybacks. Section 2303 of the CARES Act amended section 172 as revised by the Tax Cuts and Jobs Act (TCJA), section 13302, for tax years 2018, 2019, and 2020. Taxpayers can carry back NOLs, including non-farm NOLs, arising from tax years beginning in 2018, 2019, and 2020 for 5 years. See section 172(b)(1)(D)(i).

See link to pub 536: https://www.irs.gov/publications/p536