Once the apartment building is sold, it is no longer a passive activity. Any money you get after that, like the money you get back after closing, is usually called Other Income instead of passive income.
While this classification may feel unfair, the IRS generally treats post-sale income as ordinary taxable income rather than linking it back to the original investment. Unfortunately, this means it won’t be eligible for passive loss deductions or other benefits tied to rental property ownership.
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