Lee B Posted June 4, 2013 Report Share Posted June 4, 2013 I'm working on a fairly complicated 1040. Client owns some vacation rental property, which was generating passive losses, which were deducted. Last spring 2012, they sold a half interest in the property, which generated a Long Term Capital Loss of $ -23,764 which shows up on line 2 of Part I of Form 4797. Below that also on Line 2 is an entry "PAL Adjustment" $15,397, which reduces the Capital Loss to $ -8,367. I don't see anything specific about this in the 4797 instructions, so I need some feedback from anyone that can explain what this is and why the capital loss is being reduced. Thanks, Lee Barckert Quote Link to comment Share on other sites More sharing options...
Lee B Posted June 5, 2013 Author Report Share Posted June 5, 2013 Ok, I've looked at the Form 4797 Instructions, The Tax Book, J K Lasser Pro Edition and The Master Tax Guide. I've also done a Google search. I've read about PAL Adjustments in two IRS Auidt Guides, but they were about two different Passive Loss situations. So my question is, Is my ATX software correct in making this adjustment or ??? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 5, 2013 Report Share Posted June 5, 2013 It sounds like the overall losses from the passive activity are being limited, and that would be calc'd on the 8582 and its worksheets. That would be most likely where the PAL adjustment is coming from. Quote Link to comment Share on other sites More sharing options...
Lee B Posted June 5, 2013 Author Report Share Posted June 5, 2013 Thanks for pointing me in the right direction. I took the time to backtrack it to worksheet 7 on page 2 of Form 8582. It was a bit annoying because the ATX program links took me to a dead end. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 10, 2014 Report Share Posted March 10, 2014 This is an old thread, but I have the same situation. I can't find a Worksheet 7 on p. 2, and I've looked at 2012 Form 8582 as well. Lee or Judy or anyone, can you help a girl out? Never mind, found the answer in a 2012 thread: Passive Activity Loss Adj on 4797. My good buddy Bulldog Tom has saved the day. Just needed to check a box. Thank you. 1 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 4, 2014 Report Share Posted April 4, 2014 This is an old thread, but I have the same situation. I can't find a Worksheet 7 on p. 2, and I've looked at 2012 Form 8582 as well. Lee or Judy or anyone, can you help a girl out? Never mind, found the answer in a 2012 thread: Passive Activity Loss Adj on 4797. My good buddy Bulldog Tom has saved the day. Just needed to check a box. Thank you. Can you point me to this thread (obviously, I'm having the same problem), or Tom, will you give me the magic check box, please? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 4, 2014 Report Share Posted April 4, 2014 Can you point me to this thread (obviously, I'm having the same problem), or Tom, will you give me the magic check box, please? '?do=embed' frameborder='0' data-embedContent>> In that topic, Tom said "Have you gone into the Sch E and clicked on the box for "Complete Disposition of a Passive Activity"? I think that is your problem. It is a two step process to dispose of a rental activity in ATX. You have to do the sale in the Asset Entry form and then click the box on the Sch. E." Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 4, 2014 Report Share Posted April 4, 2014 I love this Board. Thanks so much! 1 Quote Link to comment Share on other sites More sharing options...
JIMMYP Posted March 9, 2016 Report Share Posted March 9, 2016 Hi All... I have a client who sold a rental house at a big loss. From reading above, I got rid of my PAL adjustment, but now see that the loss is going straight to the 1040 as "Other gains and losses" on Line 14. I was thinking at least part of the (176,244) loss would wind up as NOL, since he paid no tax before the loss, and didn't need this loss on his 1040! Or at least, it would be a capital loss carryover! Comments? thanks Quote Link to comment Share on other sites More sharing options...
JIMMYP Posted March 10, 2016 Report Share Posted March 10, 2016 In other words.....Selling rental real estate at a gain is a Capital gain. If rental RE is sold at a loss, is it a Capital Loss, or an Ordinary loss? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 10, 2016 Report Share Posted March 10, 2016 2 hours ago, JIMMYP said: In other words.....Selling rental real estate at a gain is a Capital gain. If rental RE is sold at a loss, is it a Capital Loss, or an Ordinary loss? You might want to review the instructions for Form 4797, specifically the chart on page 1 of those instructions "where to make first entries." That will give you your starting point and guide you to the flow of the transaction through the return. https://www.irs.gov/pub/irs-pdf/i4797.pdf Quote Link to comment Share on other sites More sharing options...
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