Rental income - deferred pass through

[imjulier]

Hey there-

I'm just looking for ideas on how to be able to claim the rental loss of someone with income greater than $150K (from form 8582) since the loss is usually suspended. Would putting this in an s-corp allow it to pass through? Other things I'm not thinking of? Thanks for your thoughts.

Julie

[jasdlm]

Since an S-corp is a pass-through entity, I don't think it would avoid the passive loss limitation rules because the income/deductions retain their character as they 'pass through'. Also, I remember threads (can't find them now because I'm not very good at searching this site) where Jainen, OldJack, etc. discussed other downsides to owning real estate in an S-corp. Basic consensus was 'don't do it'.

[chadlonetree]

Here in CA we have our $800 minimum for S corp. So adding that to extra preparation costs, it starts to add up. I had one client that just got his Real Estate License (which is very easy to do) and managed the rental himself. Auditor allowed non-passive income. Was much cheaper than forming a Partnership (which would also allow non-passive rental losses).

[imjulier]

Thanks for the thoughts....he would be active in the s-corp because it wouldn't take much and he'd do whatever was needed so I think the passive activity loss rules wouldn't apply. I'm still just chewin' on it.

Julie

[kcjenkins]

No, the S corp idea will not work. Unless he becomes a RE professional, which is not easy, he's just out of luck at that income level. Just getting a RE license does not do it, it's a TIME issue, and given the normal income, there is no way he'd have enough time in the rental to make it work.

What he could consider, though, is selling the current property, which frees up the suspended losses. Then he can take advantage of the current market to buy replacement property(s) if he wants to stay in the rental game.