https://www.thetaxadviser.com/issues/2017/apr/disposing-passive-activities.html
Suspended passive losses cannot be deducted when the passive activity is exchanged in a nonrecognition (i.e., tax-deferred) transaction, such as an exchange under Sec. 351 (transfers to a controlled corporation), Sec. 721 (contributions of property to a partnership), or Sec. 1031 (nontaxable exchanges), if no gain is recognized. However, the taxpayer recognizes any gain as passive activity income, against which passive losses can be deducted (Tax Reform Act of 1986, S. Rep't No. 99-313, 99th Cong., 2d Sess. 726-27 (1985)).
