Previous rental property with passive loss carryover - No longer rented - How to handle / can it be used in future if rented again

[rx7TII]

For a rental property listed as rented for a number of years though 2019 that has a large passive loss carryover. The property was not held for rental at all in 2020 and was personally used (family living there no rent received). The property most likely will be rented in 2021 though at FMV. 

Hopefully a claim can be made for the max allowed for the passive carryover loss in 2021 assuming income is low enough with active participation - not sure though.

1.) Can the passive loss carryover from 2019 prior be claimed in 2021 as a $25,000 max loss if rented again even though it was personally used in 2020? 

2.) How to report - Does the previous passive carryover loss need reported on form 8582 for 2020 even though not rented? If so unsure how to do this without leaving the rental in the software at 0 days rented / 0 days personal no expenses/depreciation. Or is form 8582 unnecessary for 2020 because it was already reported in 2019?

[Carl]

I am assuming the following:

1) On your 2019 tax return you converted the property from rental property to personal use, and you did so completely and correctly. (many don't do this correctly, and don't even realize it.)  So if on your 2019 tax return you worked through each individual asset listed in the Assets/Depreciation section and indicated that "I stopped using this asset for business in 2019), then the chances are you did it completely and correctly. Therefore I would expect that property to not be imported into the 2020 tax return. If it was imported, and you "know" you reported the conversion to personal use completely and correctly, then you can just delete that property from your 2020 tax return.

2) You have a printout on physical paper of your completed, filed and accepted 2019 tax return that at a minimum includes the SCH E form and the two IRS Form 4562's for that specific property. I can guarantee that you will need these forms in the future, when any one of three things happens in your life.

1) You sell the property

2) You convert the property back to rental property

3) You die

If/when you convert the property back to rental property, you will enter the property as a completely new rental and basically, "everything" starts over from scratch, with a few adjustments you will need to make using the information on the 4562 from the 2019 tax return.

As this point, I see no need to get into the details of this, since at best, you will not be dealing with it until you file your 2021 tax return next year...and that's only if you convert the property back to rental property in 2021.

[Carl]

Oh, and your passive loss carry overs remain "frozen" until one of those three things happen in your life, that I mentioned above.

[rx7TII]

Wow, thank you for your response!

Just to clarify does this "frozen" carryover loss from 2019/past years need reported anywhere on the 2020 return?

Also, for tax planning/estimated taxes - if the rental does return for 2021 are you able to confirm the carryover loss returns and is allowed to be deducted up to $25,000 along with the rental activity (assuming other qualifications are met to did this).

[Carl]

Just to clarify does this "frozen" carryover loss from 2019/past years need reported anywhere on the 2020 return?

No. That's why I stressed the importance of a physical hard copy of your 2019 tax return.

 if the rental does return for 2021 are you able to confirm the carryover loss returns and is allowed to be deducted up to $25,000 along with the rental activity (assuming other qualifications are met to did this).

It's allowed, provided you meet the criteria in 2021... and it would be very uncommon for you to not meet the criteria. Exactly how you handle it, depends on to many factors to cover at this time. You'll just deal with it, when the time comes.

[Pura01]

If I did not remove the property in 2019 but did not rent the property in 2020 how can I remove so I can file my taxes?

[Carl]

You can just start working through the SCH E section of the program and delete it from there on the rental property summary screen. However, I would also highly suggest you amend your 2019 tax return and convert the property to personal use with a conversion date of 12/31/2019.

Alternatively, you may find it easier and simpler to just convert it to personal use on your 2020 tax return with a conversion date of 1/1/2020. That would stop depreciation and make 2020 the last year you would report this property on a tax return. (Unless of course, you convert it back to a rental on your 2021 tax return.)

[tagteam]

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@Carl wrote:

....you may find it easier and simpler to just convert it to personal use on your 2020 tax return with a conversion date of 1/1/2020. 

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If you follow that method, you will find that the property will be taken out of service (i.e., depreciation will cease) at the middle of January consistent with the mid-month convention.

As a result, TurboTax will still calculate a depreciation deduction for 2020.