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New Member

Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

I had two rental properties.  One was converted to personal use last year and has passive loss carryovers.  Can the net income from the other property be offset with the passive loss carryovers of the property that was converted to personal use?




6 Replies
New Member

Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

No, rental losses will only offset rental income from the same property (until the year the property is sold). Since you didn't sell your property, converting it to personal use, won't release the losses. 

However, there is a common election for active participation, which allows up to $25,000 of your rental losses to be deductible against all other types of income, including other passive income. 

Rental losses are 'kept within the property' and only used to offset with rental income from the property in future years. When the property is sold, any carryover losses are released and will offset all other passive income.

There are two exceptions to this:

  1. If you have multiple rental properties, you can make an election to 'combine' them, which allows the rental profits and losses for all properties to be netted.
  2. If you actively participate in managing your rental property, then you can deduct up to $25,000 worth of rental losses from all income (passive and ordinary earned income). "Active participation" simply means that you are involved in making decisions about the property. You can even qualify if you use a management company, so it's a fairly common criteria that most rental property owners meet.  You can edit your response about active participation within the rental property >> property profile or at the K-1 entry. 
      New Member

      Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

      Where would I account for exception #2 above in TT? The property with the passive loss carryovers is no longer on Sch E or Form 8582. Only the rental property with the net income is on these forms.
      New Member

      Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

      How and when do I make the election to combine properties?
      Level 7

      Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

      @AlanF   I would never recommend "grouping" the rentals without the advice of a tax professional, as there are down-sides to "grouping them".
      Highlighted
      New Member

      Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

       I see no place in TurboTax to combine the rental properties. I have a passive loss of $5000 on one specific property. And I have a net profit of $4000 on another property.   Why in the world do I have to pay tax on $4000, when my net loss was $1000?
      New Member

      Can net rental income from one property be offset by passive loss carryovers from another property which was converted from rental to personal use?

      Why has this question been unanswered. Did you find the answer? If so please update as i am in similar boat as you. Thanks.