Problem:
Client have three rental activities that are subject to self-rental tax rule. However, the nonpassive income from rental#1 and rental#2 flows to passive activity form 8582(federal) and 3801 (state), and passive loss rental#3 is allowed in Schedule E. Such results are incorrect.
(Tax rule: loss from self-rental activity is passive and not allowed, while income from self-rental activity is nonpassive and cannot offset passive loss)
Solution:
‘Non-passive reclassification of land and self-rental’ need to be checked in Organizer > Income > Rent and Royalty > (Rental Activity). This was checked for the first two but unchecked for the last entity.
