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shydig
Level 2

Inherited MLP Interest - How to handle passive carryover losses?

I recently inherited an interest in a publicly-traded MLP.   The asset had accrued passive losses carried over from prior years.  Upon death, the units were transferred (not sold) into my account.  What happens to the passive losses?   For my deceased dad's account, he never sold the units so the passive losses don't appear to be captured there.  For my account, I'm thinking my basis in the investment is simply the unit count times the unit price on the day of his death.   Do passive losses evaporate upon death?       

4 Replies
martinmarks1919
Level 9

Inherited MLP Interest - How to handle passive carryover losses?

Unused passive and capital losses evaporate upon death

shydig
Level 2

Inherited MLP Interest - How to handle passive carryover losses?

Thanks martinmarks1919.  Important lesson for my own tax planning....need to use it or lose it!

Rick19744
Level 11

Inherited MLP Interest - How to handle passive carryover losses?

Keep in mind, that upon death, inherited property (which you received) receives a step-up; so possibly not all that bad.

The rules are complicated, but there is interplay between any suspended losses of a decedent and the step-up received which get taken into account on the decedent's final return.

*A reminder that posts in a forum such as this do not constitute tax advice.*
martinmarks1919
Level 9

Inherited MLP Interest - How to handle passive carryover losses?

@Rick19744 is right.......the excess suspended passive losses get deducted from the amount of step up in basis on the decedent's final return. It's complicated and here's an example.....

Decedent dies with $90k worth of suspended passive losses from an asset that gave rise to the losses and no other passive income. The asset has an adjusted basis of $400k and FMV of $475k on the date of death so the step up is $75k. On the final return the decedent gets a $15k deduction from the "excess" passive loss....which is $90k - the $75k step up. If there was no step up in basis and no passive income the whole $90k would be lost and none of that $90k gets added to the basis or anything.  Passive losses are also lost IF the step up in basis exceeds the total losses.

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