Rental activity is normally considered a passive activity. Because of this, any losses on rental property that cannot be offset by rental property income are disallowed (“unallowed”). Unallowed losses are not deductible in the current year but can be carried forward to future years to offset future passive income.
Two exceptions to this rule are that real estate professionals can deduct losses in the year incurred, and losses are also allowed when the property has been sold or otherwise disposed of.
For more information on loss rules see the IRS publication and form instructions below.
If the prior year tax return was completed in TaxSlayer Pro, prior year unallowed losses will pull forward to the current year's return and will show in the property's Expense Menu under Unallowed Loss. In Schedule E they are included in “Other” expenses. If the prior year unallowed loss did not pull forward, refer to our knowledgebase article Desktop - Unallowed prior year rental loss not pulling forward.
To enter or view the prior year unallowed loss on rental property, from the Main Menu of the tax return (Form 1040) select:
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- Rents and Royalties
- Select the property
- Unallowed Loss
Note: This is a guide on entering prior year rental losses in Schedule E in TaxSlayer Pro. This is not intended as tax advice.