Why is passive activity loss not limited while income is over $150K ?

[Anonymous_]

Is this question related to a vacation rental?

See https://www.irs.gov/publications/p527#en_US_2023_publink1000219123

[fyung3107tax]

Sold my rental property (not vacation home) for loss, TT calculated as ordinary loss offsetting other income.  Shouldn't the loss be limited (Form 8582) and reduced to $0 when joint income is over $150K ?

Where did I make an erroneous entry?

[Anonymous_]

No, your loss should not be limited.

When you dispose of a rental property (essentially, business property) all of your suspended passive losses are released and can be used in their entirety to offset all other income. 

In fact, the loss can even create a net operating loss in some instances.

[fyung3107tax]

So this is ordinary loss but not capital loss?

[Anonymous_]

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@fyung3107tax wrote:

So this is ordinary loss but not capital loss?

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Correct, for rental property it's called a Section 1231 loss which is treated as an ordinary loss.

[fyung3107tax]

Restarted a second tax return, with same entries, resulting in loss limited to $0 -- opposite result contrary to first return.

Also noticed on Form 4797 Sales of Business Property, Part I, line 2, column (g) Gain or loss is 0.

When Cost Basis is greater than Gross Sales Price, shouldn't there be a loss?

Also found TT Disposition Report, for subject rental property  column (h), Gain (Loss) Limited by 6198 if applicable is correct; column (i) Gain (Loss) Allowed is 0; and column (j) Loss Suspended Current Year are all entries from column (h).

These seems to be a correct loss but for some reason all losses are suspended for current year?

Sorry this is confusing, there must be a mis-entry somewhere.

[fyung3107tax]

Hope this is solution:

Under Property Profile/ General Property Information/ Update ... Do Any of These Situations Apply to This Property?

Sold button needs to checked, then all losses flow thru as TagTeam leader advised earlier.

Thanks for your assistance.