Passive Activity Loss Carryforward - Sold Property

[THBSr]

I prepared my 2024 return on TT H&B. There was a vacation rental that was taken off the rental market at year end 2024 in anticipation of a sale in early 2025.

The property didn't pre-populate when the 2024 data was moved over to 2025. It may have moved over as a Schedule C, regardless of the fact that it was a Schedule E activity in 2024. The TT product is now abyssmal.

Regardless, when I started to enter the property as a Schedule E activity the software asked me if there was any rental income in 2025, to which I answered "No." It then instructed me to delete the activity as a Schedule E.

Having done that, I then entered it as 'Sale of Business Property.' But how do I enter the passive activity loss carryforward, which frees up now that I have exited the property.

Did I say that this product is now abyssmal? I meant that this product is now ABYSSMAL.

[DianeW777]

The passive loss carryover is entered in the rental activity. You should enter the rental, then answer 'Yes' to the rental income question even though you didn't actually receive rent in 2025. Then you will enter the passive activity loss and the sale in the rental activity.

First I will place an example of how you prorate the selling price to each of the assets including the land.  

For any asset, such as appliances, that really have no value because they are past the recovery period of five years you can use a zero.

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset. If you want you can check the allocation of building and land in your county real estate tax office, on file now.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100% 

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

Passive Activity Loss Entry if applicable:

Assuming your passive losses were carried over each year, this will be a separate and identifiable entry which will carry to the Schedule E.  The full remainder of passive loss carryover is used in the year of sale as an expense. This is combined with your overall rental gain or loss to your Form 1040. 

• When you are on the screen 'Do any of these situations apply to this property?' (Property Profile section), be sure to check the box under Carryovers. 

See my notes below on entering the sales price/expenses for each asset inside the rental activity.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Search (upper right) > type schedule e > Enter > click Jump to .... link
2. Answer the questions and on under Rent and Royalty Summary, click Edit
3. Click Update to the right of Assets/Depreciation.
4. Do you want to go directly to your asset summary?, click Yes and Continue
5. Click Edit to the right of each asset to be disposed of
6. Go through several screens until you get to Tell Us More About This Rental Asset
7. Click on This item was sold…….   And continue to answer the questions

You might also review information here for more details 

[THBSr]

Thanks. That's takes me part of the way there, but it still leaves some issues to resolve.

The property was withdrawn from the rental market in October of 2024. Hence, it is no longer depreciable after that date. However, it was sold in February of 2025.

Your screen entitiled "Tell Us More About This Rental Asset" does not give me the option of entering different dates of retiring from use and sale. Without going into a lot of detail, that wreaks havoc. How do I game your system to get the basis offset against the sale proceeds AND not have depreciation in 2025?

[PatriciaV]

You have the option to report the sale separately from the retiring the assets.

1. Report that you stopped using all the assets on the day in 2024 when the property was no longer used as a rental. You need to edit each asset to enter the date.
2. Report that you didn't rent the property at all in 2025. You should see a warning note that TurboTax will delete all information about the property, and you will need to save your records should you sell it in the future.
3. Report the sale of the property under Investment Sales (Form 1099-S, even if you didn't receive that form). Basically, you report the sales proceeds and selling expenses, then use your adjusted basis (cost less accumulated depreciation) to determine the capital gain or loss on the sale.

Note that if you have another Rental Property, you can add the carryover losses to the sold property from the "Situations" page by checking the box for "I have passive activity real estate losses carried over from a prior year."

[THBSr]

So what you're telling me is that TT really isn't set up to handle this situation, which doesn't seem especially rare. Hence, as opposed to presenting the sale of a former rental property on Form 4797, it ends up on 8949/Sched D?

[Mike9241]

about the only workaround is to enter the pal on a schedule e for the propety and check the complete disposition box to free it up. details of the pal and QBI (if applicable) will need to be entered.

for rental days and personal days enter 0

there is an enterable form 4797 where you would enter the details of the property disposition.

[THBSr]

Thanks.

Sounds a little complex, but not as bad as preparing the whole return by hand.

[THBSr]

It's a far from intuitive process, but it worked. Thanks for your assistance.