Question

Prior year non deductible expenses on rental property

Forum|Forum|3 years ago
March 14, 2023
1 reply
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I have read several answers to questions on this but am still unclear how to come up with the prior year non deductible expenses. Is it simply the expenses in excess of income? If I've been using Turbo Tax for several years why wouldn't that number transfer over?

How is this different than Carryovers?

TurboTax Home & Biz Windows

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RobertB4444

Non-deductible rental expenses are exactly that - expenses that you aren't allowed to deduct. Sometimes those expenses are related to personal use, sometimes they are required to be capitalized. Prior year unallowed losses are different. Those are the losses that will follow the rental property until it is disposed of or you use them up, whichever comes first.

The prior year non-deductible expenses should be pretty easy to add up. The prior year unallowed losses are harder. They are determined by your other income as well as your filing status.

Here's a really good thread on prior year unallowed losses.

@truckmassey

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C

cmvdragon

You said: Non-deductible rental expenses are exactly that - expenses that you aren't allowed to deduct. Sometimes those expenses are related to personal use, sometimes they are required to be capitalized.

How do i find this? Can you give examples?

Carl11_2

A non-deductible expense would be what you paid for the water bill for the month you lived in the property for personal use, or any portion thereof.
A carry over loss, also referred to as a suspended loss, is different.
Basically, when your allowed detectible rental expenses exceeds your rental income, the amount of those expenses that exceeds the rental income are carried over to the next year. Or you can say they are "suspended" until the next year. You can deduct them from the rental income the next year "if" you have the deductible rental income to deduct them from. Typically, you won't. So it is common for your carryover/suspended losses to increase with each passing year so long as the property is classified as a rental. Those carryover/suspended losses are not "released" until the tax year you sell the property. In the tax year you sell the property those losses are deductible from any taxable gain realized on the sale, as well as from "other" ordinary income; such as your W-2 income for example.
Now it is perfectly possible for one to never have carry over losses. It just depends on the the numbers. For example, property owners with modified adjusted gross incomes of $100,000 or less may deduct up to $25,000 in rental real estate losses per year if they "actively participate" in the rental activity.You actively participate if you are involved in meaningful management decisions regarding the rental property and have more than a 10% ownership interest in the property. This allowance is phased out for taxpayers whose MAGI exceeds $100,000 and eliminated entirely when it exceeds $150,000. Thus, it is useless for high-income landlords.

So if you do have any carry over losses to be carried over to the 2024 tax return, you'll find the information on IRS Form 8582. If that form is not present in your 2023 tax return, then you do not have any suspended losses to carry over to 2024.