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stanley1231
Returning Member

Carryover of unallowed loss from prior year to a different rental property

I have two rental units A and B and my MAGI is too high to allow any passive loss to be applied on active income.

 

In 2023 A has $10,000 loss and B has $3,000 loss. Both were disallowed last year.

 

In 2024 we moved into A and no longer rent A out for any single day in 2024. I noticed Turbotax automatically discard the $10,000 loss since we no longer rent it out. Turbotax only carried over the $3,000 loss to B for 2024.

 

In this case, does mean the $10,000 loss is wasted? If we do not plan to rent A out again, anything we can do to use that loss in future?

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6 Replies

Carryover of unallowed loss from prior year to a different rental property


@stanley1231 wrote:

 

In this case, does mean the $10,000 loss is wasted?

 

If we do not plan to rent A out again, anything we can do to use that loss in future?


 

No, it means that TurboTax is faulty and does not continue to carry it forward.

 

That loss can still be used against any Passive Income.  Or if/when the property is sold in a "fully taxable transaction", it can be used then.

 

As for what to do because of TurboTax's faultiness, it depends.  Because you have another rental, you may consider continuing to report that as a rental property (with no income and no expenses), just so you can continue to report the Passive Loss Carryover.  Your tax return will incorrectly show it as a rental, but the end result shouldn't be problematic.

Carryover of unallowed loss from prior year to a different rental property

you will also have to keep track of the depreciation taken on A. if you sell it in a fully taxable transaction the depreciation previously taken has to be recaptured as section 1250 Gain. There have been horror stories in this community about taxpayers who didn't keep track and then sold the property and asked in this forum what should they do because they no longer had the necessary records. 

stanley1231
Returning Member

Carryover of unallowed loss from prior year to a different rental property

Thank you very much. Yes when Turbotax asked me if I still rent out A I answered no. Then Turbotax asked me to remove it -- seems this is a fault.

 

Just to clarify your suggestion -- I can report it as a zero-income zero-expense (even without any deprecation), right?

Carryover of unallowed loss from prior year to a different rental property

Correct, no depreciation.

 

It is still incorrect to report it as a rental, but due to the program errors, in your situation it is probably the least problematic of options to report it as a rental with no income or expenses (including no depreciation).

stanley1231
Returning Member

Carryover of unallowed loss from prior year to a different rental property

OK it becomes more interesting. Someone asked a very similar question https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/suspended-passive-los... and @DianeW777 answered the same as you.

 

However ChatGPT thinks differently: "If Property A is no longer considered a passive activity (e.g., you converted it to personal use or business use) The suspended losses from A cannot be used against B’s income." and it pointed to "Activities That Aren’t Passive Activities" of Pub 925 for the reason.

 

After reading that section I am leaning towards what ChatGPT said. Since the section said "The following aren’t passive activities... 3. The rental of a dwelling unit that you also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental. ... You shouldn’t enter income and losses from these activities on Form 8582, as they are not passive activities. " Since I can't enter it on Form 8582, then I can't use it to offset any income from property B. The loss can only be used when I sell A.

 

I want to hear what you think @AmeliesUncle and @DianeW777 -- thanks!

 

Also note that I was not asking about the year that I converted the A into personal use; I was asking about the next year when I rented out A for 0 days.

Carryover of unallowed loss from prior year to a different rental property


@stanley1231 wrote:

 

However ChatGPT thinks differently:


 

ChatGPT can be helpful, but it is often misleading or outright wrong, including in this case.

 

The losses are still suspended passive losses.  Just because the activity is no longer passive, does not retroactively change the prior losses to be non-passive.

 

In addition to offsetting passive income, if the "former" passive activity had income (such as the scenario that you mentioned where a rental was also used for 14+ days of personal use), the suspended losses can also offset that income.

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