Are all passive carryover losses on a rental property can be used in the year of the sale ONLY to offset the income of the last year?

[DN76]

I have a similar story.

Had two foreign rental properties.

Property 1 recorded passive income

Property 2 recorded passive losses greater than the income from property 1 so I carried forward suspended losses.

When I sold property 1 at a gain, can I use the total accrued suspended passive losses from property 2 to decrease the gain on property 1?

If not, what happens to all the accrued suspended passive losses when I then sold property 2 at a loss? Will those be subtracted from my regular W2 income and/or carried forward into the next year to reduce the next year's W2 income? Or will they be lost? 

[Critter-3]

The passive losses on the rental that was sold are all released in that year however some(or all)   of the other rental's losses may also be released on the form 8582 due to the reduced AGI ... review the entire return to see how this flows.  

[Critter-3]

If you sell rental 1 at a gain the passive losses on rental 2 are not released if the income is too high.  Passive losses are carried forward until such a time as they can be released. 

[DN76]

Rental 1 was definitely sold at a gain. 
How high can my income be before the passive losses on rental 2 can not be released? Also, by released do you mean they are no longer suspended losses but now become ordinary losses that can be reduced from my normal W2 income? 

[Critter-3]

Released to the Sch E  which  automatically is an ordinary income loss to be used against other ordinary income ... look at the form 8582 for the reduction ... note the $150K on line 6.

[DN76]

Ok, so the limit is 150K gross income?
I earned 75K from my job

70K capital gains on Rental Property 1 sale.

And then that year I would've had a $1499 profit on the rent of that property.

But a $8605 passive loss from Rental Property 2 plus also other suspended passive losses.

In that case, would I be able to release the suspended passive losses from Rental Property 2 or would my income be too high?

[DN76]

Can anyone else help confirm this?

[DN76]

Just to clarify, I'm not a real estate professional under the material participation rules, I'm having the properties managed. Once I sell property A, are the gains considered passive income and could I then deduct the suspended passive losses (that came entirely from property B) and turn them into regular losses?

[M-MTax]

Those carryover losses can be used if you didn't group the properties.

[DN76]

Thanks, and what section would my foreign rental property be classed as?

Section 1231 or Section 1250?

Basically, I bought it as an investment, moved to the US then rented it. 

I lived in it for a super short period of time, like a month maybe - if that makes a difference or not?

It was rented to regular people, nothing business related.

[M-MTax]

Sec. 1250 property is nothing more than a subclass of Sec. 1231 property.....Sec 1250 property is real estate.

[DN76]

Once again, I was told that the gain I receive on my rental property is not passive income. And the two properties must be treated separately. So when I sell property A at a gain, I can't use the suspended losses from property B by deducting them from the passive income. So I can't release them into ordinary losses. Is this true? I'm getting very confused now. 

[Critter-3]

Selling A at a gain cannot release the passive loss carryforward on property B ... that would be like trying to get orange juice out of an apple.  

[DN76]

Ok, so when I sell property A at a gain, I can not use the suspended passive losses that I have from property B in any way? So the gain on property A is not passive income? Because if it was surely I could deduct my passive suspended losses from it? 

[M-MTax]

I can not use the suspended passive losses that I have from property B in any way?

Yes you can use them......they're released when you dispose of a passive activity. Some folks get confused about this because there's a difference between passive losses that accrue on annually and annual passive income AND gain from passive activities.