If the K1 I received shows a loss, do I need to enter it in this years tax return or wait until I sell the units or get positive activity in a future year?

[Tax2019Pay]

Hi JulieS for this very informative reply.  For my third question, I am asking if you have a net gain from Schedule D (rental property sale net gain minus stock losses).  Can the K-1 passive losses from 2022 and also K-1 passive losses carryforward from other S corporation partnership investments be used to further offset the net gain from Schedule D?  Thanks. 

[AbrahamT]

The answer is yes, Passive activity losses are offset against passive activity gains. In your situation, both the rental property sale , the stock losses are considered passive activity. See HERE as to what constitutes passive activity

Remember, in your case, the rental activity would have to be considered passive. To meet those qualifications,  see here

See also HERE  that passive only losses that are "greater" than the income from  passive activity are disallowed for the current year. But up untill that point, it is allowed.

[Tax2019Pay]

Hi Abraham T:

If as you said, rental property sale is considered as passive activity, does it mean the gain from the rental property sale is considered as passive gain and can be offset by passive loss? 

If so, the next question in the year when the rental property is sold, if you have suspended passive losses carryover from other real estate partnerships (different investments from this rental property and these different passive real estate investments have not been sold), can you use these suspended passive losses to offset the gain from this rental property sale?  Shouldn't the answer be no? 

[HopeS]

Yes, your first question. The gain from the sale of the property is considered passive. Gains on the sale, exchange, or other disposition of property used in an activity is characterized in the same way as the activity itself. If the activity is passive, the gain is passive. This also applies to an interest held through a pass-through entity, (e.g., a partnership or S corporation).  Therefore, losses from passive activities can offset this income.

Yes, you can deduct your suspended losses from total profit when you sell your rental property, as long as you meet certain IRS rules.

• First, when selling your rental property, you must sell “substantially all” of the rental activity. For example, if you own a single rental property and sell it, you have disposed of your entire interest and can take the full deduction.
• You must trigger a tax event, meaning that you must sell your interest for value in a fully taxable transaction
• And you must sell your interest to an unrelated third party, no family or close affiliates

 However, if you have more than one rental property, deducting your suspended losses depends on how your properties are structured.

You may also offset other PAL carryovers by following the steps below:

When you sell the property you must follow these steps:

1. Apply current and suspended losses against your gains from this sale. Or, if you took a loss on this sale, you can add this loss to your total current and suspended losses from the activity
2. If you have remaining gains from selling your passive activity after step one, you can apply any losses from any other passive activities.
3. If you still have losses after step one, meaning that if your passive losses exceeded the sale value of your passive activity, you can first apply those losses to any other passive gains you had this year.

@Tax2019Pay 

[Tax2019Pay]

When one sells  a rental property that followed a straight line 27.5 year depreciation schedule, the net gain should be reported on Form 4797 -  it will likely be categorized as a 1250 property.  The net gain should be transferred to Schedule D.  If the rental property is in service for a few years prior to sale, the net sale gain should be a long term capital gain.  The tax should be calculated based on capital gain tax rate.  The depreciation recapture should be calculated at the depreciation recapture tax rate.  these should all be included in the total amount shown on Line 16 on Form 1040.  The suspended passive losses on this rental properties over the years should be reported on Schedule 1 and the Schedule 1 result should then be transferred to Line 8 on Form 1040.

Is this summary correct?

However, several experts provided conflicting answers regarding how the gain from the sale of a rental property can or cannot be offset by suspended K-1 passive losses from other partnerships (unrelated to this rental property).  If the net gain from the rental property sale is included as a long term capital gain on Schedule D, the net gain is allowed to be offset by stock losses.  If so, how can the net gain from the rental property sale is also offset by the suspended K-1 passive losses from other partnerships (unrelated to this rental property) on Schedule E?  It does not make any sense to offset the same gain twice - one on Schedule D and another one on Schedule E. 

[AbrahamT]

If the rental real estate is a passive activity. See here for the qualifications

then the gain on from the Sch D will be considered a passive activity gain and will be offset by suspended passive losses which will show up on pg. 2 of your Schedule E. So, it won't show up twice. The gain will show up on Sch D and the loss will show up on Sch E and that's how they will offset each other.

[Tax2019Pay]

Thanks AbrahamT. The question is then, assuming the real sale is a passive activity, where and how to enter the selling a rental property with a net gain 165k, rental income loss of $1200 suspended rental income passive losses from past years of 13k, current year of pass through total losses from other unrelated partnerships on K-1’s of 15k, and suspended passive losses from these other unrelated partnerships on K-1’s of 300k, and finally stock losses of 50k, in this example?  How does TurboTax communicate between Form 4797, Form 8252, Schedule D, Schedule E and Schedule 1 in a logical sequence stepwise? Thanks

[AbrahamT]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the  
directions below:

TurboTax Online:
1. Sign into your online account.

2. Locate the Tax Tools on the left-hand side of the screen. 
3. A drop-down will appear. Select Tools  
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token number in a reply to this post.

TurboTax Desktop/Download 
1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax andselect “Send Tax File to Agent”
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be 
sanitized and transmitted to us.
4. Please provide the Token Number