On my accumulative losses from my prior years in form 8582, line 21, as a result of my sale of rental property. Can I offset it against my wages/ordinary income?

[warlindawalker]

This is a continuity of your response "Did you have any unallowed losses from prior years that you were not able to take advantage of? The losses accumulate on Form 8582 until such time as you can take advantage of them. Line 21 will show the loss from deducting expenses from income. Line 22 draws from  Form 8582."

[view2]

Passive losses are generally deductible only to the extent of passive income. However, current and suspended losses are fully deductible if there is a “qualifying disposition.” Under IRC § 469(g), a “qualifying disposition” requires three criteria:

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

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

3. To an unrelated party.

If these three tests are met, losses are fully deductible against non-passive income (unless the taxpayer has basis limitations). Thus, in the year of disposition, losses allocable to the passive activity may offset portfolio and other investment income or may become part of a net operating loss."

The passive losses flow to line 17 of the 1040, you can review the 1040 ..

[JDR1]

Hello - 

We have two rental properties that both have unallowed losses that have carried over.  We sold one of those properties and TurboTax is combining both unallowed property losses for the gain calculation.  Is there a way in Turbo Tax to isolate the unallowed losses on form 8582 for the specific property sold?

[Carl]

I've spent the last hour looking through IRS publication 544 and I can't find it. It would take me hours to read the entire publication. It is my experience, when you sell a rental property, gains from the sale first have to be offset by "all" passive losses from like-kind activities first. Then if there are any remaining losses those losses are taken against "other ordinary income". But that's only after all passive losses have been taken against that gain.

[Critter]

Passive losses on the sold rental are reported on the Sch E in the year of sale which is how you recoup them ... they should not be mingled with the second rental property.  Review the return carefully ... did the prior year passive loss carryforward show up on the Sch E ? 

[JDR1]

Hi - thanks all.

Yes, the gain is being offset by all of the passive losses from both rentals and some other K1s, so showing a lower gain for the year than I would like - i was hoping to defer the passive losses on the second property until we sell that unit (otherwise, a bigger gain and more taxes later)!  I just don't see an option in TurboTax to separate or adjust.

[Critter]

You cannot defer the losses if the deduction is currently allowed ... review the forms to see how that is calculated. 

[Critter]

This is an instance where upgrading to the LIVE help so the return can be reviewed by a tax professional would be a cost effective way to make sure the return is correct before you file it since we on this forum have no way to see your return and could be answering the question incorrectly and/or you are not understanding the answers given.