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!

[tagteam]

See the thread below (particularly the last post, unfortunately):

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/manually-recording-pr...

[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!

[tagteam]

I believe what @AmeliesUncle is saying in that post is simply that TurboTax does not handle this scenario properly.

You can't report a passive loss for a rental property during the interview without also reporting a rental property. If you try to input 0 rental days, the program will delete the Schedule E.

[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!

[tagteam]

I'm going to wait for @AmeliesUncle to weight in here, but it's fairly clear that TurboTax does not handle this scenario properly and an input of 0 rental days and 0 personal days would certainly look weird on a Schedule E.

[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!