Can we apply passive loss carryover when we converted our rental to personal use when it was rented 45 days. .

[haynan53-gmail-c]

We have $30k in passive loss carryover.  I need to know if the $25k special rule applies when the rental was only partial year and we converted to our residence.   

[Anonymous_]

Passive losses can be used to offset passive income.

Suspended passive losses are released upon a sale to an unrelated third party in a fully taxable transaction.

The $25,000 special allowance for active participation is calculated on an annual basis; there is no carryover of the unused part of the allowance.

See https://www.irs.gov/publications/p527#en_US_2023_publink1000219124

[haynan53-gmail-c]

I read the references.  It appears I can take the loss carryover.  Agree?  It’s not prohibited in the “caution” area.  

[Anonymous_]

You can use up to $25,000 in any one single tax year if you're filing a joint return and meet the income limitations.

If your losses exceed the $25,000 special allowance, then you can, of course, carryover any loss in excess of the $25,000.

Does that answer your question? 

[Mike9241]

you can take the $25K provided there was active participation and your modified adjusted gross income was $150K or less for 2023. see form 8582 part II. any loss not allowed is carried over, However, since you converted the property to your personal residence any non-deductible loss won't be allowed until you sell the residence in a fully taxable transaction.

[haynan53-gmail-c]

Yes I think it does.  It’s just strange that I cannot find any documention that says “directly” that it’s okay.  I am going take it. 

[Anonymous_]

Section 469(i)?

https://www.law.cornell.edu/uscode/text/26/469