Help with Suspended Passive Losses on a Rental that had been converted to primary

[chanhiu]

Hello,

If Rental A had been converted into Primary residence last year.  How can I carry forward the Suspended losses from Rental A to the following year so the losses can be used to offset income from Rental B?  If I remove Rental A from Schedule E, the suspended losses for Rental A is gone from Form 8582 in TT. 

Please advise, Thank you!

[chanhiu]

Thanks tagteam.  So I still dont fully understand.  Can I keep Rental A on Sch E with $0 income/expense so the losses will flow thru and can offset with income from another rental?  If so, does TT allow you to input 0 days for rental & personal days?  Also, will this cause any red flag for the IRS?

I just didn't want to override anything in TT (like on form 8582) since it will error out when efiling.  Thanks again!

[chanhiu]

Hi again, looks like the link you referenced earlier was from 2020.  I actually found this newer (2024) link: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-to-add-a-suspende...

I see that Mike9241 also mentioned inputting 0 days and 0 income/exp could be the work around. 

So if I do that, then Rental A will show a loss, and Rental B will show a profit on Schedule E.  And the carryover suspended loss would be used up per Form 8582.   I just tested in 2023 TT and it did not give me any errors when I ran the error check & review analysis.  However, since the efile window is closed, I can't do the efile check so not sure if it will pass that.

I just wanted to reconfirm if this is the correct work around and if it will raise any red flag to IRS?  Since I'll report a rental that's been converted to personal use in order to force the suspended losses to come through.

Thank you again!

[Anonymous_]

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[chanhiu]

Great thanks!

[AmeliesUncle]

The program might let you enter 0 rental and 0 personal, but you would then be reporting that you DO have a rental property.  You DON'T have a rental property, so there should NOT be a Schedule E showing a rental.

The program is faulty and won't let you continue to report the passive loss on 8582 without the Schedule E.

I suspect that most people just don't file the required 8582 during those years, but that is wrong and could potentially lead to problems in the future.

You could file the 0/0 Schedule E in order to keep filing the 8582; even though that is wrong, that might be the lesser of two wrongs.  Because you have a second rental property, this is your better option (the best option is to use different software that actually does it correctly).

[chanhiu]

Thanks AmeliesUncle,  

So using RentalA's carryover suspended losses (after converted personal) to offset Rental B's income is allowed, correct?  

Put the TT technical issue aside, If Rental A is removed from Sch E, could A's carryover losses remain on Form 8582?   If so, I could overwrite Form 8582 to include RentalA's losses and paper file for 2024.  The losses should be used up in 2024.  Would it work? 

Thanks again!

[AmeliesUncle · Accepted solution]

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@chanhiu wrote:

So using RentalA's carryover suspended losses (after converted personal) to offset Rental B's income is allowed, correct?  

 If so, I could overwrite Form 8582 to include RentalA's losses and paper file for 2024.  T

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I think so.

I would not recommend it.  You can't override that form in TurboTax and if you start manually doing things you are more likely to make a mistake somewhere.  As I said before, I would choose the lesser of two evils and file a blank rental with zero days.

[chanhiu]

Thanks AmeliesUncle.  I will go with the 0/0 Sch E route.  Thank you for your help!

[chanhiu]

Thanks tagteam.  I do have an active Rental B so I will go with the 0/0 Sch E route for Rental A.  Thank you for your help!

[RustyShackleford]

I'm in a similar situation, having carried-over passive losses from a rental property I converted to a second home in 2024.  And I didn't rent at all in 2024, thus Turbotax wants to delete Schedule E.

But I have no passive income against which to deduct these losses (unless investment income such as dividends counts).   Am I out of luck for taking the loss this year ?   Is the issue simply how to carry the losses until I sell ?

[RustyShackleford]

Here's one (admittedly sketchy) option for getting around Turbotax deleting Schedule E and therefore not carrying-over the passive loss into Form 8582 ...

Claim one non-existent night of rental, and 19 nights of personal use.   Turbotax will happily fill out Form 8582 with the carried-over passive losses.   There will be no depreciation expense (I guess since there's more than 14 days of personal use) and it'll only add 5% of your expenses.     Claim rental income equal to those expenses.  So your total loss is equal to the carried-over amount, just as it should be.