I have carry forward losses on my rental properties for the last few years ~ will they expire or will they always be there. Do I have a limited time to use them or say will they still be usable if I sale the property in say 10 years?
Rental property passive losses that are not deductible right away are called suspended passive losses. These deductions are not lost forever. Rather, they are carried forward indefinitely until either of two things happen:
The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds trule if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity.
In addition, you must sell the property to an unrelated party—that is, a person other than your spouse, brothers, sisters, ancestors (parents, grandparents), lineal descendants (children, grandchildren), or a corporation or partnership in which you own more than 50%. And, the sale must be a taxable event—that is you must recognize income or loss for tax purposes. This means tax-deferred Section 1031 exchanges don’t count, except to the extent you recognize any taxable income. (I.R.C. §469(g).)
Rental property passive losses that are not deductible right away are called suspended passive losses. These deductions are not lost forever. Rather, they are carried forward indefinitely until either of two things happen:
The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds trule if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity.
In addition, you must sell the property to an unrelated party—that is, a person other than your spouse, brothers, sisters, ancestors (parents, grandparents), lineal descendants (children, grandchildren), or a corporation or partnership in which you own more than 50%. And, the sale must be a taxable event—that is you must recognize income or loss for tax purposes. This means tax-deferred Section 1031 exchanges don’t count, except to the extent you recognize any taxable income. (I.R.C. §469(g).)
if I have 3 properties and I report them separately on a sch e is that considered keeping them separate activity
Yes. If you have one reported in Column A, another in B and a third in C, they are separate activities. The IRS refers to that as separate "like kind" activities.
Hey, just realized I was notified today (oct 😎 of a waiting response to a message from 2 years ago. @TurboTaxGabi the IT folks playing with the servers again? 🙂
rental property converted to llc, with related party, PAL loss carryforward on 1040 $160k, do I lose the carryforward loss or does it continue to carryforward until llc is disposed?
"rental property converted to llc"
What kind of LLC? It matters. Single member LLC? Or multi-member LLC, which is the same as a partnership, basically?
I have the same issue with carry forward losses going into a multi-member LLC. I can't find where in TurboTax to report that carry forward loss from the property prior to it being moved into an LLC.
We now have 3 different people in this thread and it *will* lead to confusion and incorrect information being given. Please start a new thread with your specific problem/issue so that *YOUR* specific situation can be property addressed.
So after one sells the property, if there are still net unused losses remaining, what can you do with them if you only have W-2 earnings from employment?
It is very *uncommon* for rental property to *not* show ever increasing losses on paper as the years pass; especially if there's a mortgage on the property. On your tax return the carry over losses are shown on IRS Form 8582 and you'll see that loss amount increase with each passing year.
When you combine mortgage interest, rental dwelling insurance, property taxes and the depreciation you're required to take by law, that alone can quite easily exceed your rental income for the year. Add to that the other rental expenses and that makes it rare for rental property to ever show an actual profit on paper. Therefore the total losses accumulate and just continue to increase with each passing year since you are only allowed to claim your passive losses against passive income.
Now in the tax year you sell the property you will be allowed to "realize" all those losses first against any taxable gain you may get from the sale. If it gets your taxable gain to zero and you still have more loss to deduct, then you're allowed to claim it against other "ordinary" income - such as any W-2 income you may have that year.
Depending on your total AGI your loss for the year could be limited to as little as $3000. But that's still not a problem because the remaining loss is just carried over to the next year where the same rules apply.
Now in the tax year you sell the rental, if you report the sale in the rentals & royalty income section of the program, it will take care of all this for you automatically in the background. However, if your AGI is high enough to actually limit your "allowed" loss that year, the program will not always automatically carry that over to next year's taxes. So that's why once your tax return is accepted by the IRS, you want to print out a copy of *every* *thing* and not just the forms needed for filing or the forms to "keep for your records".
The IRS Form 8582 will show your loss amount that was not allowed that year (if any) and you "may" have to manually claim/enter that amount in the program when you do your taxes next year.
Thank you so much for this info. I have been searching for a while and am happy to hear that net passive losses after the sale of the rental property can be used against W-2 income, since that is the only other income we have. Limited as it is, at least you can carry it forward and continue using it against ordinary income. Thanks again!
How are the passive losses entered into Turbotax (e.g. added to property cost base, etc.)?
When you enter the rental into Turbo Tax:
You can use the losses in a year when you have passive income, or in the year that you dispose of the property.
Thanks JulieS. I didn't rent the property in 2019 as I was selling it. TT seems not to want to include the property going through this process in the "Rental Income" section.
Seemed to resolve by entering 0 days rented and 0 days personal use, in stead of checking box "Dis not rent in 2019".
You are a lifesaver! Been searching for this all day. Thanks very much. Can I please ask a follow up question...my properties are contained in a LLC so I’ve input the relevant details in the k1/partnership section. Should I also input the same info in the Rental and Royalty section (where I input the carryover losses)? Worried about double counting for the same properties but can’t work out how to input the rental income, expenses etc and carried over losses in the same section. Thanks
You are a lifesaver! Been searching for this all day. Thanks very much. Can I please ask a follow up question...my properties are contained in a LLC so I’ve input the relevant details in the k1/partnership section. Should I also input the same info in the Rental and Royalty section (where I input the carryover losses)? Worried about double counting for the same properties but can’t work out how to input the rental income, expenses etc and carried over losses in the same section. Thanks
I have passive losses that are carry over. My wife qualifies for real estate professional status this year. Will we be able to deduct all the passive losses that were carried over from past year to this tax return?
No, you will not be able to deduct all the passive losses that were carried over from past year to this tax return.
Treatment of former passive activities.
A former passive activity is an activity that was a passive activity in any earlier tax year, but isn’t a passive activity in the current tax year. You can deduct a prior year's unallowed loss from the activity up to the amount of your current year net income from the activity. Treat any remaining prior year unallowed loss like you treat any other passive loss.
In addition, any prior year unallowed passive activity credits from a former passive activity offset the allocable part of your current year tax liability. The allocable part of your current year tax liability is that part of this year's tax liability that‘s allocable to the current year net income from the former passive activity. You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero).
Publication 925, Passive Activity and At-Risk Rules
Hi:
If I have passive activity real estate losses carried over from 2018 ~$40K. 2019 rental net profit is $8,000.
What is the 2019 rental real estate loss and how is it calculated? Thanks!
You can apply the carry over loss from 2018 to your rental income in 2019 of $9,000, so your income for the current year is -0-.
If your adjusted gross income is less than $100,000, you can take an additional deduction of $25,000 from the carryover loss from 2018. If your adjusted gross income is over $150,000, you cannot deduct any additional loss in the current period. If you income is between $100,000 and $150,000, you can take a loss of an amount less that $25,000, based on what your income is.
Does the deduction make a difference whether it is considered a QBI?
No, whether or not there is deduction or loss is not what makes it QBI. Passive income businesses such as a rental property can be a QBI business if it meets the requirements. See this link for more information about when a rental property qualifies for the QBI deduction.
When you have a business that qualifies for the Qualified Business Income (QBI) deduction, your deduction is based on the income of the "QBI business". No QBI business income, no deduction. And, if you have a loss on your QBI business, that loss gets tracked and "carried forward" to be offset against next year's QBI business income when calculating that next year's QBI deduction.
This is true even if the losses were passive which is the case with your rental losses. Passive losses for a QBI business (from 2018 forward) will be tracked until the year the loss is included in taxable income.