cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Returning Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

1 Best answer

Accepted Solutions
Highlighted
Level 6

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

The suspended passive losses cannot be used to offset depreciation recapture.

But you can fully deduct these suspended passive losses when you sell your rental property in a qualifying disposition.

Under IRC § 469(g), a “qualifying disposition” requires three criteria:

1. Disposition of an entire interest (or substantially all)

2. In a fully taxable event (where all gain/loss is realized and recognized).

3. To an unrelated party.

In order to release the suspended losses, there must be a complete disposition to an unrelated party in which all gain or loss realized is recognized. In other words, the gain or loss must be recognized, but not necessarily included in gross income.


**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

10 Replies
Highlighted
Level 6

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

The suspended passive losses cannot be used to offset depreciation recapture.

But you can fully deduct these suspended passive losses when you sell your rental property in a qualifying disposition.

Under IRC § 469(g), a “qualifying disposition” requires three criteria:

1. Disposition of an entire interest (or substantially all)

2. In a fully taxable event (where all gain/loss is realized and recognized).

3. To an unrelated party.

In order to release the suspended losses, there must be a complete disposition to an unrelated party in which all gain or loss realized is recognized. In other words, the gain or loss must be recognized, but not necessarily included in gross income.


**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

Highlighted
Returning Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

Yes, the sale is a qualify disposition.    Can those released passive losses be used to offset ordinary income then?
Highlighted
Level 6

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

Yes, they are deducted from ordinary income.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Highlighted
Returning Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

Thank a lot for explaining TurboTaxMinhT.
Highlighted
New Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

How/where can I see that TT is deducting this from ordinary income? Do I need to pay first?
New Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

I second that. Where do you enter the suspended PALs?
Highlighted
Returning Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

So the 2 out of last 5 yrs rule applies to me and so I can exclude gains - ie it is no longer a qualifying event - then does it mean the passive losses are now post forever? The sale is done or they can keep carrying forward to a future sale?
Highlighted
New Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

Can anyone elaborate on those first two conditions? 1. Disposition of an entire interest (or substantially all) 2. In a fully taxable event (where all gain/loss is realized and recognized). Does the entire interest has to dispose in the same tax year? In other words, if I have grouped my rental properties in my tax returns, do I have to sell them all in the same year to be able to fully deduct the suspended passive loss? And can those loss to offset some of the description recapture taxes, not just capital gain?
Highlighted
New Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

Is there a MAGI limit/phase out to this? I have a large suspended PAL this year (sod the rental property), am seeing a large "gain" because of asset depreciation every year, and cannot seem to offset the gain with my PAL (TT reports a PAL, but no tax benefit) -- this doesn't seem right: without (or with less) depreciation, landing PAL to near 0, and reducing "gain" tax seems to be lower? Depreciation increasing tax at rental property sales time for high MAGI cases?
Highlighted
New Member

I sold a rental property that had suspended passive losses. Can those passive losses be used to offset the depreciation recapture tax?

I have a partnership that liquidated.  I have told TT that is is a final K-1 and that the partnership was dissolved.  But it is still carrying over all of the passive losses instead of releasing them. How to I get TT to release the passive losses for this final year?