Are suspended PAL's fully deductible when rental real estate property is sold at a loss?

[inewman680]

How do I get TurboTax to allow all the PAL's and also the full Section 1231 loss?

[inewman680]

This was the answer provided -If you have an overall loss when you combine the income and losses, don’t use the worksheets or Form 8582 for the activity. All losses (including prior year unallowed losses) are allowed in full. Report the income and losses on the forms and schedules normally used. An overall loss from an entire disposition of a passive activity is a nonpassive loss if you have an aggregate loss from all other passive activities. When figuring your modified adjusted gross income for line 7 of Form 8582, be sure to take into account the overall loss from the disposition of the activity.

Form 8582 automatically populates for this activity and so I can't enter the loss directly onto Form 4797 or force the entire unallowed loss carryforward to be allowed this year.  Do I override all the automated entries?

[CherylW · Accepted solution]

An overall loss is defined:

Overall loss. This is (a) the excess of the prior year unallowed losses from the activity over the “net income” from the activity or (b) the prior year unallowed losses from the activity plus the “net loss” from the activity.

This, from the instructions from Form 8582, Passive Activity Loss Limitations:

If you have an overall loss when you combine the income and losses, don’t use the worksheets or Form 8582 for the activity. All losses (including prior year unallowed losses) are allowed in full. Report the income and losses on the forms and schedules normally used. An overall loss from an entire disposition of a passive activity is a nonpassive loss if you have an aggregate loss from all other passive activities. When figuring your modified adjusted gross income for line 7 of Form 8582, be sure to take into account the overall loss from the disposition of the activity.

Look at the example on page 8 of the instructions for Form 8582 for an exact discussion of 1231 allowance:

Form 8582 Instructions