mixed use property

[morrisliberty]

hello ,

In the Tax Book Deluxe Edition 2010 edition on pg 7-7 there is a chart called personal use of rental property which ccompares rental property to mixed use property. In this chart it states that direct expenses are deducted on schedule e subject to passive actlvity loss rules for both rental property and mixed use property. Is this correct? I thought mixed use property was by definition not a passive activity and therefore subject to section 280a not section 469. Where am I going wrong? Thank you.

[mwcpa]

not having read the book you reference, when you say "mixed use" you mean mix between renting it and personal use... if so, where do you fit?

1. personal use with very limited rental (under 15 days).... income is tax free and expenses not deductible
2. vacation with limited personal use (personal use less than 15 days or 10% of the rental period, which ever is less).... generally expenses limited to income except for interest, taxes, and casualty losses.... here 280A comes into play but 469 does not.
3. vacation where rental use exceeds 14 days of 10% of the rental period and the period exceeds 14 days... this would be rental properly, 469 comes into play and the personal use period of expenses are not deductible at all....

there are slightly different rules for each issue, and you need to do more homework to get the actual result for your specific situation, I only laid out general rules and did so very very broadly....

[morrisliberty]

hello

according to tax book page 7-7 mixed used property is if personal use of the dwelling is more than the greater of 14 days or 10% of the days the unit is rented at fair rental value , the deduction for expenses is limited to rental income IRC SECTion 280A[c][5]. AThen on pg 7-9 and 7-10 on The Tax Book Deluxe Edition 2010 edition , states That certain activities are identified in IRC and Treasury regulations as not passive actvities.
Rental of a dwelling unit that was also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair-rental [mixed-used property].Income from mixed used property cannot be offset by passive losses.A loss from mixed used property is limited to income under IRC Section 280A. See mixed-used property page 7-7.
If mixed used property as defined above is subject to section 280a rules than are direct expenses for mixed used property subject to passive activity loss rules as per page 7-7? Does this make sense that income is limited under to section 280a and direct expenses are subject to passive rules under section 469? Where i am going wrong? If the deduction for expenses for a mixed used property as defined above is limited to rental income under Section 280a why would the direct expenses be subject to passive activity loss rules? thank you

[commentator]

Feb 8, 2011 9:39:19 GMT -5 morrisliberty said:

hello ,

I thought mixed use property was by definition not a passive activity and therefore subject to section 280a not section 469. Where am I going wrong? Thank you.

You're going wrong by being wrong. There is nothing in the passive active rules that makes the rental activity portion of mixed use property be non-passive.

Please don't ask for a cite. You would be asking me to prove a negative.

----
See my concession of error in Reply #5 below.

[morrisliberty]

hello,


On page 2 of instructions for form 8582 [2010] passive activity loss limitations . The following are not passive activities. 4.The rental of a dwelling unit you used as a residence if section 280A[c][5] applies.This section applies if you rented out a dwelling unit that you also used as a home during the year for a number of days that exceeds the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental. Generally, income and losses form these activities are not entered on Form 8582. However, losses from these activities may be subject to limitations other than passive loss rules.

[commentator]

I will admit that when other rules prevent a loss from existing at all then there is no passive activity loss. When Section 280A(c)(5) applies to a residence, the personal use is so great that no loss on the rental activity is deductible. For times when such an activity is profitable, IRC Section 469(j)(10) makes it clear the passive activity rules of Section 469 do not apply. Therefore, in that situation, the rental activity is non-passive and other passive losses cannot be offset against the profit.

When personal use exists but does not exceed the greater of 14 days or 10% of rental days, then the passive activity rules of IRC Section 469 do apply.

Using Morris's book's definition of "mixed use" I find that I was incorrect when I asserted that the passive activity rules apply to mixed use rental real estate.

[morrisliberty]

hello,

If i am not a real estate professional, my agi is less than 100,000 and I actively participate in the rental property. Here is the situation Year 1 the property is classified as mixed used property and in year 1 the section 280a rules apply and you have a loss carryover and in year 2 the property is classified as a rental property and section 469 passive loss rules apply. Do you carryover the loss from year 1 under the section 280a rules to offset the gross rental income and the passive losses in year 2? If under section 469[j][10] if a passive activity involves the use of a dwelling unit in which section 280[c][5] applies for any taxable year, any income , deduction, gain , or loss allocable to such use shall not be taken into account for purposes of this section for such taxable year., however if you read 280A[c][5][ii] any amount not allowable as a deduction under this chapter by reason of the preceding sentence shall be taken into account as a deduction [allocable to such use] under this chapter for the succeeding taxable year. Any amount taken into account for any taxable year under the preceding sentence shal be subject to the limitation of the first sentence of the paragraph whether or not the dwelling unit is used as a residence during such taxable year. In other words it looks like these two sections are in conflict, can someone explain how passive loss carryover and section 280a loss carryover works when the property is classified in one year as mixed use property and in the next year the property is classified as a rental?

[morrisliberty]

hello,

I would like to clarify my last post If year 1 vacation home and section 280a loss carryover , Year 2 rental property under section 469 and passive loss carryover , Year 3 rental property with passive income can you use year 1 section 280a loss carryover and year 2 section 469 passive loss carryover to offset Year 3 passive income on rental property? You have two separate loss carryovers, I believe you can offset year 3 passive income with both losses but I am having problems with section 280A[c][5] and section 469[j][10]. Does anyone understand how this works/ Thank you.

[morrisliberty]

hello,

i found this example on the internet from companion to PPC's 1040 Deskbook.

conversion from vacation home to rental property

since the section 280a limitations are computed on an annual basis , it is possible for the same home to be treated as a vacation home one year and as a rental property with personal use the next. Any limited expenses related to the vacation home that were carried forward may be used in the year the residence is treaeted as a rental property. These carryforward expenses are still limited to the amount of income received from the property in the current year.

example 3a-7 conversion from vacation home to rental property

alice has a beach home. During 2008,she vacationed in it during April and December and rented it to unrelated parties at $2,000 month FMV for the remaining 10 months. She reported the following income and expenses on her 2008 return.

income 20000
mortgage interest 15000[ b]
property tax 4000
utilities 7000
depreciation 8000
net loss 14000

schedule A
income -
mortgage interest [2466]
property tax [658]
utilities -
depreciation-
net loss [3124]

rental schedule e
income 20000
mortgage interest [12534]
property tax [3342]
utilities [4124] [c]
depreciation - [c]
net loss -0-
carryforward
utilities [1725] [c]
depreciation [6685] [c]
net loss [8410]

a 2000* 10 months

b prorated based o 60 days of personal use and 305 days rental use.
c limited to gross income from the property . remainder is allowed as a carryforward.

[morrisliberty]

hello
continued from previous post.
In 2009 Alice did not vacation at the property and rented it for 3 months to unrelated parties. Since Alice did not use the property more than the greater of 14 days or 10% of total property use, the property is treated as a rental property subject to the passive loss limitations. Her modified agi is less than 100000 and she lives close enough to the property to actively participate in its rental. In computing her 2009 net income from the property her 2009 return reflects the following.

2009 amount
income 6000
mortgage interest [14800]
property tax [4300]
utilities [2500]
depreciation [8000]
net loss [23600]

2008 carryforward

utilities [1725]
depreciation [4275] [c]
net loss [6000]

2009 schedule e
income 6000
mortgage interest [14800]
property tax [4300]
utilities [4225]
depreciation [12275]
net loss [29600]
passive limitation 4600 [d]
allowable loss [25000]

a 2000 * 3 months
b since '
alice did not use the property in 2009 100% is allocable to rental use.
c limited to gross income from the property . Remainder is allowed as a carryforward,
d maximum loss allowed undr irc section 469 is 25000

[morrisliberty]

hello continued from previous post

In 2010 alice will have 2 separate carryforwards from 2008 and 2009. She will have depreciation carryforward from 2008 of 2410[ 6685-4275 allowed in 2009] subject to the Section 280a limitaitons, and passive loss carryforward from 2009 of 4600 subject to the section 469 passive loss limitations./


My question assuming this is correct if in 2010 the property is classified as a rental property under section 469 and the property produces passive income can I deduct both carryforwards in 2010? How would this work? I believe section 280a[c] [5], section 469 [j]a10], and section 469 come into play.