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

[DVegas]

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?

[AmandaR1]

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. 

[DVegas]

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.

[AlanF]

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

[TaxGuyBill]

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

[jimmylee1000]

 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?

[ksatishv]

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

[markallred]

What is the answer to this question? This is my exact situation. I have suspended passive activity losses on Property B that I have never received a benefit on. I have taxable income on Property A. How can I net my passive activity loss carryforwards from Property B against my taxable income from Property A?

[markallred]

How do you make either election in TurboTax? Either one would solve my problem.

[Carl]

How do you make either election in TurboTax? Either one would solve my problem.

Since you converted one of your properties to personal use, you do *NOT* want to group properties. Once you group properties, you can not ungroup them.

Work through the rental section again, and in the property profile section is a screen for specifically and explicitly for active participation. Select whatever is necessary to indicate you are an active participant. Then, (and this is important!) you must *FINISH* working through the property profile section until you get to a screen with a "DONE" button on it, and actually click that DONE button.

I would provide a screen shot. But you're using the online version and I use the CD version. So my screen does not look like yours.

[AmeliesUncle]

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@markallred wrote:

What is the answer to this question? This is my exact situation. I have suspended passive activity losses on Property B that I have never received a benefit on. I have taxable income on Property A. How can I net my passive activity loss carryforwards from Property B against my taxable income from Property A?

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Was one property converted to personal use, like the original question?

If not, assuming you enter all of the information that the program, the program will do it automatically.