Form 4562 Line 11 incorrect

towtruck

I have a self employment business separate from a rental house I own. I am thus using Form 4562 for my self employment business to depreciate property. My problem is that Freetaxusa is incorrectly adding in rental loss from Schedule E into the business income calculation for Line 11, despite answer 'No' to the question, "Is this rental activity considered a business for tax purposes?" as well as answering 'No' to "Is this rental income qualified business income?"

From the Form 4562 instructions, The total cost you can deduct is limited to your taxable
income from the active conduct of a trade or business during the year. You are considered to actively conduct a trade or business only if you meaningfully participate in its management or operations. A mere passive investor is not considered to actively conduct a trade or business.

Thus, from my understanding, the loss from Schedule E should not be included in this income calculation.

KristineS

Hi towtruck,

Thanks for writing in about your situation.

There are a couple of things to consider here and you may be best served by contacting Support so we can look at your entries to get the full picture of your situation. Sometimes a simple correction needs to be made by checking or unchecking a particular box to fix an issue.

Form 4562 covers depreciation and amortization. A rental house is typically depreciated. The form is automatically created based on entries in software.

In general, "you actively participated in a rental real estate activity if you owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense. Management decisions include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions."

Do you meet this criteria?

Double check your entries at the prompt 'Tell us about your rental property' by following this menu path: Income > Business Income > Schedule E > edit > Basic Rental Information > edit.

These are a couple of possiblities. There may be other facts and circumstances to your return we need to see to provide better help.

towtruck

Thank you for the response. I did contact support and they confirmed it was an error in the program, based on my answers to the questions.

MatthewD

Hi TowTruck,

Thank you for reaching out to our support department and working with them on this Form 4562 issue.