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My wife has a small business (a LLC), a lake front rental cottage, that lost over $6,900 in 2012, but Turbotax won't let me deduct it. Since my wife's stroke in late 2010, I have been handling everything: renting the cottage, arranging repairs, paying bills, everything. No mortgage is involved. Because we used Schedule E before it was a LLC, I just have continued along since. After quite a bit of study, it appears that our AGI is too large to take a deduction. Last year it was >$150,000 because of taking excess money out of IRAs and selling of stocks to come up with the entry fee for our long-term care facility.* It seems that we can't take a Schedule E business deduction in this case even with active participation. Is this true?

Someone said they thought we were using the wrong schedule since the cottage is an LLC. Would that make any difference?

I am not trying to get out of paying any taxes that we actually owe, but an extra $6,900 is not beer money with us.

Last year will be our last full year of owning the LLC because my wife is gifting it to her youngest son, but that is a different story.

* We actually paid the up front money in 2013. Had I known of the problem, I could have held off on getting the money together as we get some tax credit for it this year (2013), the year we paid it. since I raised some of the money this year too, we will be able to take some advantage of it.

brucedoe
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It seems that we can't take a Schedule E business deduction in this case even with active participation. Is this true?

Yes. At least as long as your AGI is over $150k. But all is not lost. The loss is simply deferred into the future. If your income drops below $150k, you will be able to use part or all of this deferred loss. And if you should dispose of the rental in a fully taxable transaction, you will also be able to use the loss in the year of disposition.

Someone said they thought we were using the wrong schedule since the cottage is an LLC. Would that make any difference?

Not if the only owner of the LLC is you and/or your wife. Schedule E would be the right place on the Federal return. States might have different issues. (Notably, California, where you'd need to file an additional return, form 568, to pay the required taxes on an LLC.)

Last year will be our last full year of owning the LLC because my wife is gifting it to her youngest son, but that is a different story.

Not so much a different story as a sequel. ;-)

A gift is not a fully taxable disposition, so you would continue carrying forward this loss, waiting for your AGI to drop enough to use it.

--Peter
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Peter

Many thanks!

brucedoe
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