How to properly report a $1000 loss on rental property in Schedule E (simple rental real estate situation)

I always get confused about that depreciation thing. So even if OP doesn't claim depreciation, the IRS will still act like they did when they sell? That seems kinda unfair. Also, what counts as "active participation" for that $25,000 allowance? Is just being the only owner enough?

Yes, depreciation is considered "allowed or allowable" by the IRS. When you sell a rental property, you must reduce your cost basis by the amount of depreciation you were entitled to take, whether you actually claimed it or not. It's essentially a "use it or lose it" situation - you'll pay the tax consequences later without getting the benefit now if you don't claim it. Active participation is a lower standard than material participation. Generally, you actively participate if you make management decisions like approving tenants, deciding on rental terms, approving expenditures, and similar activities. Being the sole owner typically means you meet this standard as long as you're involved in these kinds of decisions, even if you use a property manager for day-to-day operations.

Does that taxr.ai thing actually work with rental properties specifically? I have three rentals and my accountant charges me a fortune. Does it just give general advice or can it actually help fill out the forms properly?

I'm skeptical about online tax tools handling complex situations like passive losses correctly. How does it handle the AMT adjustments for passive activities? That's where my previous tax software messed up and cost me a bunch in penalties.

It definitely works with rental properties - that's actually one of its specialties. It analyzes your specific rental documents and provides customized guidance for your situation, including how to properly complete Schedule E, Form 8582, and any other required forms. It's designed to handle multiple properties too, so your three rentals would be covered. For AMT adjustments with passive activities, the system handles those correctly by identifying potential AMT triggers in your passive losses and showing you the proper adjustments needed on Form 6251. It specifically looks for situations where passive loss treatments differ between regular tax and AMT calculations to avoid those penalty situations. It actually saved me from making an error related to my suspended passive losses that would have triggered AMT issues.

Wait, how does that service work? The IRS phone lines are impossible to get through - I tried calling about my rental property depreciation question for weeks last year and gave up. Does it actually get you to a real person?

This sounds like BS honestly. I've called the IRS dozens of times and it's always the same automated system that hangs up on you. No way there's some magic service that gets you through unless they're doing something sketchy. And even if you do get through, most IRS agents give contradictory advice anyway.

The service basically calls the IRS for you and navigates through all the phone menus and hold times. When they reach an agent, they call you and connect you directly. It's completely legitimate - they're just using technology to handle the frustrating waiting part. Yes, it absolutely connects you with real IRS agents. That's the whole point of the service. I spoke with an actual IRS representative who accessed my file and confirmed my specific situation with rental losses. The difference is I didn't have to spend hours repeatedly calling and getting disconnected.

How detailed do these records need to be? Like do I need to track each expense category separately for the carryover or just the total loss amount each year? I've been just writing the total on a notepad file on my computer...

You should definitely track more than just the total. At minimum, track each property separately if you have multiple rentals, the total loss for each property each year, how much was allowed to be deducted (if any), and the running balance of disallowed losses. I also recommend keeping a copy of the complete Schedule E and Form 8582 for each year, not just the totals. During my audit, the IRS wanted to see the connection between what was reported on Schedule E and what flowed to Form 8582, including all allocation calculations. I had some losses that were partially allowed due to passive income from other sources, and they scrutinized how I calculated those allocations.

Short-term rentals can actually be treated differently in some cases! If your average rental period is 7 days or less, the IRS may consider it a "business" rather than a rental activity. This means it might be reported on Schedule C instead and subject to different passive activity rules. The material participation standards would apply instead of the rental real estate rules.