Has anyone mentioned the at-risk rules yet? Even if you could somehow get around the passive activity loss limitations, you'd still need to have "at-risk" basis in the LLC to claim the losses. Did you or your wife actually contribute cash or property to the LLC, or personally guarantee any loans? Without at-risk basis, you can't take the losses even if they weren't passive.

Just to add another perspective on this - make sure you're also considering the state tax implications carefully. I had a similar situation with an out-of-state LLC and ended up owing more in nonresident state taxes than I expected because the state where the property was located didn't allow the same loss carryforward rules as the federal return. Also, keep detailed records of all your suspended passive losses. I use a simple spreadsheet to track mine year over year, including the original source and any partial usage. It becomes really important when you eventually dispose of the property or generate passive income to offset against. The IRS doesn't send you a reminder of what you have suspended, so it's on you to track it properly. One last thought - if this hunting property ever generates rental income (like seasonal hunting leases), that would be passive income that could be offset by your suspended losses. Might be worth discussing with the family whether monetizing the property could help everyone's tax situation.

For QSBS tracking specifically, make sure whoever prepares your taxes understands the documentation requirements. We had an SPV investment in a QSBS-eligible company, but when it came time to exit, we discovered our accountant hadn't maintained the proper documentation from day one to support the exclusion. Cost us a fortune in taxes that could have been avoided. Make sure your operating agreement specifically addresses QSBS tracking and that you keep meticulous records of the holding period for each investor.

One thing I'd add to this conversation is that you should also budget for potential audit defense costs. While SPVs with simple structures are less likely to be audited, the IRS has been focusing more on partnership returns lately, especially those involving investment activities. Even a simple audit can cost $2,000-5,000 in professional fees to handle properly. Consider getting audit protection insurance or setting aside a small contingency fund from your SPV for this possibility. It's not common, but when it happens, you don't want to be caught off guard with unexpected costs that have to be split among all the investors. Also, make sure your operating agreement clearly spells out how these ongoing compliance costs will be handled - whether they come out of the SPV's cash or are billed back to investors pro-rata. This prevents awkward conversations later when the annual tax bills come due.

Same situation here! Filed in January and still showing "processing" status. One thing I learned is that Michigan processes returns in batches, not continuously like the IRS. They typically run major processing cycles 2-3 times per week. Also, if you claimed any credits like the Earned Income Credit or have dependents, that automatically adds extra review time - usually 2-4 weeks beyond the standard processing period.

@Kara Yoshida - I've been through this exact same frustration with Michigan! One thing that helped me was understanding that their "processing" status is actually pretty broad and can mean several different things. Sometimes your refund is already approved internally but the status won't update until the actual deposit is scheduled. Also, if you e-filed, Michigan typically takes 14-21 business days for straightforward returns, but if there are any discrepancies with your W-2s or if you're claiming education credits, it can easily stretch to 6-8 weeks. Have you tried accessing your account transcript through Michigan's online portal? Sometimes that shows more detailed status info than the basic refund tracker.

One thing nobody's mentioned - if you're married and your spouse qualifies as a real estate professional, their status can apply to your jointly owned properties too. My wife works full-time in property management (easily meets the 750+ hours), so all our rental properties are treated as non-passive activities. Might be worth considering if your spouse has real estate involvement.

One more angle to consider - if you're dealing with non-paying tenants and significant losses, you might want to look into whether any of this qualifies as a "theft loss" or "casualty loss" rather than just passive rental losses. If tenants damaged the property beyond normal wear and tear or if there was actual criminal activity involved (like breaking lease agreements fraudulently), you might be able to claim some losses under different tax provisions that aren't subject to the passive activity rules. Also, make sure you're maximizing all your deductions related to this situation - legal fees for eviction proceedings, property management costs, repairs from tenant damage, etc. These can all potentially offset rental income from other properties even if you can't use them against ordinary income. The documentation suggestions everyone's made are spot-on. I'd also recommend taking photos of any property damage and keeping copies of all communications with tenants, including payment demands and eviction notices. This creates a paper trail that shows your active involvement in trying to manage the situation.

I've been through a similar scenario with real estate LLCs that combine rental activities with charitable donations. One thing that caught me off guard was the AMT (Alternative Minimum Tax) implications. These deals can sometimes trigger AMT because the charitable deduction for appreciated property is treated differently under AMT rules. Also, make sure you understand the depreciation recapture implications if/when the LLC eventually sells properties. The pass-through losses you're claiming now include depreciation deductions, and when properties are sold, that depreciation gets "recaptured" and taxed as ordinary income up to 25%, not capital gains rates. Regarding your original question about loss application order - yes, losses offset ordinary income first, which is beneficial. But don't forget about the Net Investment Income Tax (NIIT) of 3.8% that might apply to your capital gains if your AGI exceeds $200K ($250K if married filing jointly). The LLC losses reducing your AGI could help you avoid or minimize this additional tax layer.

One important consideration that hasn't been mentioned yet is the timing of when you can actually claim these losses. Real estate donation deals often have specific milestone requirements before losses can be recognized - for example, the property needs to be purchased, improved, appraised, and formally donated to qualify for the deductions. I've seen investors get caught off guard when they expected to claim losses in year one, but the LLC's timeline pushed the donation (and thus the major tax benefits) into the following tax year. This can significantly impact your tax planning, especially if you're counting on offsetting current year capital gains. Also, be aware of the "substantial economic effect" requirements under Section 704(b). The IRS requires that partnership allocations have economic substance beyond just tax benefits. Make sure your LLC operating agreement properly documents how profits and losses are allocated among members, and that these allocations would have meaningful economic consequences outside of taxes. Given the complexity of these transactions, I'd strongly recommend getting a second opinion from a tax professional who specializes in partnership taxation and charitable giving strategies. The potential tax savings are significant, but so are the compliance requirements and audit risks if not structured properly.