I'm about to sell on rental property that has grouped into other rental holding in tax returns. They had passive loss for many years that I didn't even carry them over since they are as long as 10 years ago. How do I capture them? Do I manually add them up and report it? And do I have to sell them all in the same year as their are the "entire interest" as I read. Can I realize the entire "loss" when I sell the last property in other year and get refund from the first ones from other tax years? I still have tons of questions about depreciation recapture tax. But first of all, is there anyway to write it off in any portion at all?
If you made the election to group all of your rental activities as one activity after January 24th, 2010, then all rental properties are considered one activity. If this is the case then you have not disposed of your entire interest which limits the passive loss deduction until full disposal.
- New grouping. You must file a written statement with your original income tax return for the first tax year in which two or more activities are originally grouped into a single activity.
Grouping is important for a number of reasons.
If you group two activities into one larger
activity, you need only show material participation
in the activity as a whole. But if the two activities
are separate, you must show material
participation in each one. On the other hand, if
you group two activities into one larger activity
and you dispose of one of the two, then you
have disposed of only part of your entire interest
in the activity. But if the two activities are
separate and you dispose of one of them, then
you have disposed of your entire interest in that
There are many questions that you have relating to the various options, choices and requirements. This is detailed and complex information so I will provide the publication link for you to review several options, such as disclosure requirements as well as regrouping options. Publication 925-Passive Activity Rules
If you have not carried the unallowed passive losses consistently on your tax returns they will be lost. You can go back as far as 2014 (due April 15, 2018) to complete the correct carryover losses that were unallowed. Then correct each return going forward. This will allow you to have the correct amount on your 2017 tax return.
- Options and/or requirements:
- Amend the tax returns for 2014 forward to capture the unallowed losses.
- Regroup your initial grouping election. A statement must be attached to your return for the year of the change.
- Complete any required disclosures if necessary.
If you think that you will have properties sold in two different years, that means you will want to consider doing a regrouping or wait to use the unallowed losses when the last rental is sold. You can regroup the rentals on the 2017 return by using a statement starting on page 9 of the publication. You would mail your return to include the statement with the return. I hope this helps answer the most important questions for you.