You are correct. I did some additional checking and I was able to find a credible source - an article from the AICPA's publication "The Tax Advisor" that indicates that you can offset the gain from the sale of one rental property with the suspended losses from other rental properties. According to the article Disposing of an Activity to Release Suspended Passive Losses:
When an entire interest in a passive activity is sold to an unrelated party, current and suspended losses related to the activity may be used according to the following rules (Sec. 469(g)(1)(A)):
1. If the entire gain or loss from the sale of the property is recognized, the current-year loss from the activity (including all suspended losses) can be offset in full against any gain from disposing of the property or combined with the loss from such disposition.
2. If gain remains after item 1, it can be offset against any losses (including suspended losses) from all other passive activities. Any remaining gain is reported in the normal manner. However, any loss remaining is carried forward as a suspended passive loss.
3. If the result of item 1 is a loss, this loss can be offset against any net income or gain from all other passive activities (net of suspended losses carried from earlier years). If any of the loss from the disposed activity remains, it can then be deducted as a nonpassive loss.
So, now for your question: How do you get TurboTax to make this happen? I created a return in TurboTax with two rental properties, both that had a suspended Passive Activity Loss (PAL) from prior years. I disposed of one the properties, resulting in a gain that exceeded the current year loss and PAL for that property. The program automatically used both the current year and suspended PAL from the other property (the one that wasn't sold) to offset the gain. Nothing had to be done to "trigger" the release of the PAL from the second property. The program did it automatically.
On Form 8582 - Passive Activity Loss Limitations you can see this on Part 1, line 1a through 1d. Your prior year PALs should have carried forward from 2023 and appear on Part IV, collumn (c). If this isn't happening in your return, I can't explain why.
Are you using TurboTax Online, or TurboTax Desktop? If you're not using Desktop, I strongly recommend switching, so you can see your Forms and supporting worksheets. In many instances (but not all), you can make entries directly on the Form or worksheet.
Finally, if you can't get it to work in your return, I would like to take a deeper look at it. However, To do so, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:
Please consider taking a screenshot of the token number and sending it.
TurboTax Online:
- Sign into your online account.
- Locate the Tax Tools on the left-hand side of the screen.
- A drop-down will appear. Select Tools
- On the pop-up screen, click on “Share my file with agent.”
- This will generate a message that a diagnostic file gets sanitized and transmitted to us.
- Please provide the Token Number that was generated in the response.
TurboTax Desktop/Download Versions:
- Open your return.
- Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
- This will generate a message that a diagnostic copy will be created. Click on OK and the tax file will be sanitized and transmitted to us.
- Please provide the Token Number (including the dash) that was generated in the response.
*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)
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