Income Tax Questions

Hello I have two questions in regards to income tax.

The first is related to real estate.

I have a home that was once my primary residence. I moved to another country for 2 years and rented the home. When doing my taxes, I was reporting unallocated losses on my 8582 form. Now I am back into the home (since mid 2006) so the home is not a rental and became my primary residence again.
I was wondering if the accumulated unallowed losses should be deducted this year since I don’t rent the home anymore. Or should (could) I carryover the unallowed losses until I actually sell the home.

Second question is related to income. Like I mentionned I established residence outside the contry since mid 2004 and came back mid 2006. For my 2004 income tax, my cpa did a foreign income tax credit. For my 2005, I did a foreign income deductions. I was wondering what should I do for 2006. Using Turbo tax, it seems that I should be doing a foreign income deductions (2555) again but since I spent more time in US than the other country (canada) in 2006, it seems that I should be doing a foreign income tax credit (form 1116).

Your input would be greatly appreciated. And sorry if those questions seem as ignorant questions…

Thank you

On the contrary, your questions seem pretty complicated to me and I’d run to my accountant instead of trying to figure this out for myself. A good accountant will save you more money than what is bill is. Besides, I sleep much better at night knowing that an expert is on the job.

McWagner may have an answer for you; he is an accountant and seems to know his stuff.

With regard to question 1.

Form 8582 is used to determine the amount of your net passive loss that can be taken against other ordinary income. Since you should have been reporting all your rental income and expenses on Schedule E, there should not be any “unallocated losses”.

Perhaps, I don’t really understand what you mean when you use this term. More explanation would be helpful.

With regard to question 2.

It is generally to your advantage to take a credit rather than a deduction.


I agree with you in regards to the first point. Indeed 8582 is calculating the amount of net passive loss. On my Schedule E, I am also reporting all income and losses. but isn’t that amount (from 8582) should end up on schedule E, on line 23 then 25 ?
In my case it doesn’t so far. But since I “disposed” of my property as a rental, I would think I could deduct those accumulated unallowed losses from prior years that I have on 8582 (line 3c).

In regards to the second point. I also have a feeling in more advantageous to take the credit rather than the deductions. However, what are the condition to take the credit vs the deduction ? I would be surprise if it was a pick and choose. Don’t you have to validate criterias in either situation?

I can’t help answer your residency question without some research.

regarding your Sch E losses: why were they not deducted in the years earned? If your passive losses were limited due to high income, you’ll have to carry the losses until you dispose of the property. If you just didn’t take them…amend.


thank you for your answer.

My losses were not deducted in the years earned as I was told (by my ex cpa and by the turbo tax) that since I was not “active” on the management then I could not deducted those losses but just accumulate them until I sell the property.
However my question comes back to whether the accumulated losses can be deducted not only when you sale the home but when it is not rental status (ie: back as my primary residence)

For my first question, again it does seem tedious but again following the turbo tax questions, I end up with a deduction rather than a credit but it would seem that having spend more time in the US than Canada this year I should get a credit of the tax I paid in Canada and have my foreign income taxed at the us rate.

Thank you

the trigger for deducting the accumulated losses is selling the property (not to a relative).

passive (ie: not active) losses are deductible up to 25k, unless your income is over 100k. then the deduction phases out up to income of 150k, when you have to accumulate them until disposal of the asset.

you can still amend 2003 (if you hurry) and 04/05. if you’re not going to sell for a while it would probably be worth it.

can’t imagine why he would have not taken the passive loss.

I think I figured out that you really meant “unallowed” losses when you said “unallocated” losses.

Schedule E feeds Form 8582. Form 8582 feeds Form 1040.

You will have to tell us why you were not an active participant in the management of your rental property. It is true that the net passive loss allowance against other ordinary income can only be taken if you have actively participated in your rental property operation.

Even if you employed professional property managers, all that is required for active participation is that you reserved some significant management decisions to yourself. For example, you are actively participating if you reserved final approval of tenants and large dollar repair costs to yourself. Even if you did not have any of these actions come up while you were out of the country, you still actively participated if you decided to continue renting the property when the lease was up rather than taking the property off the rental market. Giving your professional property manager specific instructions about how to manage your property in your absence is sufficient.

It really is pretty hard to not be an active participant unless you have absolutely no control over the property manager.

You may want to go back to prior year tax returns and amend them for active particpation in your rental property. If you do this, maybe your suspended losses will go away.