What are suspended passive activity losses? are they same as passive activity loss carry forward?

[IsabellaG]

Yes, they are losses that are disallowed for the current year, and suspended until you either have passive income to offset or you dispose of the entire interest in the passive activity.

[bob3823]

Is death of the owner considered disposition of the entire position even though the ownership passes to the estate of the deceased.

[IsabellaG]

Yes, it's considered a disposition and the suspended losses may be claimed on the decedent's final tax return. 

However, the losses in this situation are limited to the amount that the losses exceed the step-up in basis of the asset in the hands of the beneficiary.  (IRC section 469(g)(2)).

For example, a passive investment has an adjusted basis of $60,000 and suspended passive losses of 25,000. If the asset has a fair market value of $75000 as of the date of death, the heirs will have a step up in basis of $15,000 ($75,000-$60,000). The amount of losses that can be claimed on the decedent's final return is only $10,000 ($25,000-$15000). The $15,000 is lost. 

[Carl]

Basically, when the recipient of the property receives it, they will have a cost basis that is based on the FMV at the time the original owner passed (not the date the inheriting recipient's name is put on the deed.) and if they maintain it as rental property, they start depreciation all over from their "new" cost basis.

The original owner's suspended losses, as well as depreciation recapture are taken care of on the deceased's final 1040 tax return, the estate return, or if split, then a combination of both.