Schedule E Vacation Home Loss

[grenoble28]

Hello,

I have a client with a second home - rented 59 days and used 40 days so it qualifies as a vacation home. 

If I just put in the rental and personal use days and the expenses the software is allowing the loss on Schedule E despite AGI being well in excess of the phaseout for the $25,000 special allowance. 

The only way I can get the loss to be suspended is to check the "tax court" allocation method for interest and taxes.  

Has anyone else had similar experiences or found a work around?

Thanks!

[dkh]

Have you looked at the Form 8582 to follow the calculations that is allowing the loss ? 

[rbynaker]

My crystal ball says the loss is allowed under IRC 121 to the extent of mortgage interest and taxes that would otherwise be deductible on Sch A..

[grenoble28]

Thank you for the response.  The 8582 is not generating as once I put in the days rented and days personally used ProSeries auto checks the "Other Passive Exceptions" box since a vacation home rental is not considered a passive activity.  

[grenoble28]

Thank you for taking the time to respond.  I am not familiar with this exclusion and have not been able to find anything on it based on my research.  It does appear that the software is allowing the deduction for direct rental expenses (management fee and cleaning) and the allocated portion of real estate taxes and mortgage interest.  All other expenses (utilities, insurance etc.) are being excluded as a vacation home loss limitation.  Any further insight you have would be helpful 

[sjrcpa]

Sounds like the software is doing it correctly.

[TaxGuyBill]

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@grenoble28 wrote:
It does appear that the software is allowing the deduction for direct rental expenses (management fee and cleaning) and the allocated portion of real estate taxes and mortgage interest.  All other expenses (utilities, insurance etc.) are being excluded as a vacation home loss limitation.

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I agree with Rick and Susan.  The software is doing it correctly because direct-rental expenses and mortgage interest/real estate taxes are still allowable.  It is only the other 'shared' expenses that are not allowable.