It is difficult to analyze some situations in a forum such as this. Having said that, I will provide some general guidance but recommend that you consult with a tax professional who can see the actual return and if everything is flowing correctly.
- As you most likely know, your rentals generated passive losses for tax purposes.
- In addition, in general, you can only take passive losses to the extent of passive gains. There is an exception to this rule for rental real estate depending on your income level.
- When you completely dispose of a passive activity, if frees up all suspended losses from that passive activity.
- Additionally, the gain generated is deemed passive and now not only will it free up the suspended losses from that specific activity, it will be able to free up other suspended losses as well; to the extent of the gain. This is why you are seeing that some of the other suspended losses are "evaporating" as you say.
Since this appears to be generating a large gain, it would be wise to have a tax professional walk thru this with you one on one so as to allow you to file an accurate tax return.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
