I have carry over losses on my rental property ~ will they ever expire?

[DawnC]

That is correct @Dmarc - If you had grouped the properties together into a single rental enterprise, the prior losses would not be released until you sold both properties (the entire interest).   But since you have the properties listed separately, the passive losses are tracked separately and each individual property's accumulated losses are released with the sale of the property.    If you had grouped them together in the past, selling one property would not be considered a disposition of the entire rental activity.   A disposition generally occurs if the taxpayer’s entire interest in the activity is disposed of in a fully taxable transaction to an unrelated party.  

If your rental property has generated losses in past years, you might have suspended passive activity losses (PALs). You can generally deduct these passive losses only against passive income, which can be from other activities such as rentals or other passive business activities.   Fortunately, you can also deduct suspended PALs when you sell the property that generated them.   They are called Passive Activity Losses, which can be single properties reported separately, so multiple activities or one activity that combines multiple properties.    

[Dmarc]

Thank you Dawn. It just seemed to good to be true to to sell one property and be able to use PAL's from the other property that wasn't sold. 

[Jennda500]

@diane777  

@AmyC 

@ColeenD3 

@ThomasM125 

@DavidS127 

@MarilynG1 

I tagged all who have answered one of my post regarding this...as I keep getting different  answers and there seems to be no consistency...I really need to get this resolved this week as I'm having major surgery and won't be in any position to deal with this during recovery.

I am trying to see how do I get to utilize all of the losses associated with expenses from the sale of my rental property in 2019. My AGI was negative for that year, so I didn't get to really take advantage of those losses. 

I've been told I can't take advantage of the 25K deduction as an active participant in the rental as I can only do that in the year the house was sold ie: 2019....but what about people in my position that were in the negative? I don't get to carry those losses over? Then I was told it needs to be done by way of a NOL...I've tried to figure that worksheet out...only to be told be a few other people that it is in fact not a NOL. I don't understand how the answers can be so inconsistent...the answer should be the same based on the facts of my situation? I'm sooo confused!

Can you please assist me with this...as I mentioned in my prior post...I have completed my 2020 taxes and everything is done except this...I'm trying to offset the 3-4k in taxes I owe for 2020 from capital gains , Unemployment benefits and interest with my losses from 2019...

Thank you in advance for your assistance and patience.

[ColeenD3]

PUB 536 allows rental losses to create NOLs. Also please see this TurboTax article: Real Estate Loss

If you do have a tax loss, more favorable rules may apply.

Let’s assume you do expect a tax loss from selling a rental property you’ve owned for more than a year. That loss will be a Section 1231 loss—which can be a good kind of loss to have. Here’s why.

First, Section 1231 losses can be used to reduce any type of income you may have—salary, bonus, self-employment income, capital gains, you name it.

Second, you may have a net operating loss (NOL) if the Section 1231 loss is large enough to reduce your other income below zero. If so, you can carry back the NOL for at least two years and use it to offset taxable income in those years. In doing so, you can recover some or all of the taxes you paid in those previous years by amending those returns.

If any of the NOL is left over after going back two years, you can carry the rest forward into future tax years to offset future income (for up to 20 years). Alternatively, you can choose to not to carry it back and just carry it forward for 20 years.

Unfortunately, no one here can tell you if you actually have and NOL or not. It is beyond the scope of TurboTax. You may want to see a professional to calculate this for you.

@Jennda500

[Jennda500]

Thank you.

I understand the easiest thing to do would be to just hire/consult a pro to do my taxes...however if there is no way to use these 2019 losses to offset the tax I owe in 2020, or if I can't ever take advantage of those losses then I don't want to also incur the cost of having my taxes done only to produce the same result I already have from doing them myself. I just don't get why this is so complicated and I keep getting different answers and nothing consistent. 

@ColeenD3

[DianeW777]

@Jennda500 - I know this has been frustrating for you and I will try to clarify the situation as it stands. The information is consistent.

Here is what we know based on your information.

1. The rental property was sold in 2019.
2. All passive losses are used up in the year of sale.
3. If due to the passive losses used up in 2019, your overall income for the year was below zero you may have a net operating loss (NOL) in 2019.  Check line 8b, Form 1040, 2019
4. You do get to carryover an NOL loss to the following year if applicable in 2019 (or possibly carryback due to recent tax law changes)

Based on the information you provided with $24k of income for 2020 (unemployment, stock sales and interest), it is unclear if you had a NOL to carryover to 2020.  

And only you know if your passive loss carryover was included in the 2019 tax return.  If not, then an amendment would need to be completed.

We are unaware of the results of the sale (gain or loss).  If there was a gain, then it may have offset the passive activity losses which would mean there is nothing to carryforward to 2020 (or carryback).

For these reasons you were advised to consult a professional.  Here is the link for TurboTax Live and how to get started with that process if you choose.

[Jennda500]

@DianeW777 

Thank you for your reply.

So on my 2019 Taxes Form 1040 Line 8b it was a negative: (-$14,334)

I don't understand what you mean by this:

"Based on the information you provided with $24k of income for 2020 (unemployment, stock sales and interest), it is unclear if you had a NOL to carryover to 2020.  "

Isn't the NOL based on my 2019 taxes?  Either way..if the determination is based on line 8b of my 2019 1040 being in the negative...and it is -14,334....then what is the amount I can carry over and how/where do I input that?

Thank you for your help. 

[DianeW777]

Yes, your are correct.  The NOL is based on the 2019 return and my comment, about line 8b, was a starting point to determine if you have negative income at that point.  If you do have an NOL and there is a carryforward shown for you it should be placed in the 2020 tax return.  You can check to see if it was transferred to your 2020 return by using the steps below (repeated from an earlier discussion). 

1. Do a Search (upper right) > Type net operating loss > Press enter 
2. Click on the Jump to result > if there is no entry then you should enter your NOL carryforward on the screen that appears

The worksheet in the publication can be confusing, however I am unable to complete that for you and it is something that must be done manually if you are unable to locate the information on your 2019 return.

If you did not itemize deductions you only need to be concerned with lines 1-10 on Worksheet 2: Worksheet To Figure NOL Carryover From 2019 to 2020

• Reminder:  You must use this 2019 IRS Publication 536, page 8.

[Jennda500]

@DianeW777 

Ok when I search NOL on my 2019 I get this:

Form 8995 Line 16 Total qualified business (loss) carryforward. Combine lines 2 and 3: (-32,308)

On 2020 when I search it, the page for 2019 NOL  comes up with 2 spots which are both not filled in (yet):

Net Operating Loss Carryover:

AMT Net Operating Loss Carryover: 

[DianeW777]

@Jennda500 The information being provided with Form 8995 line 16 is the qualified business income (QBI) for the deduction which when negative must be carried to the next year to offset any qualified business income deduction in the next year. You are in the right location to add that as well but it is NOT your NOL amount.

This is another item that is separate and distinct from your NOL.  

It is worth using TurboTax Live if you are not comfortable completing the NOL carryover worksheet.

[Curious One]

I have passive LLC investments in property.  In 2019, a couple paid off and the suspended losses for all of them were released.  They worked through the return to Schedule 1 and then to the 1040 as a reduction to all other income.  I wasn't aware of this treatment, but wanted to be sure that the outcome was correct and that I should expect similar treatment in years where I have the same circumstances - suspended losses on assets that have not yet been disposed being released to the extent of gains on assets that have been sold.  Thanks for your comments.  

[Critter-3]

Suspended losses are released in the year you dispose of the property and TT handles it correctly.  

[Curious One]

@DianeW777 

I asked a question below regarding release of suspended passive losses, but in reading the chain, other questions occur to me.  In relation to the commentary you've been providing, it seems to have been in response to a question from someone who had both passive and active roles in their real estate investments.  Does that make a difference to the discussion around 1231 losses and NOL carrybacks and carryforwards?  Specifically, if all of my investments are passive and one or more of them gives rise to a 1231 loss, can I use that to offset any type of income, regardless of whether other suspended passive losses are released in connection with 1231 gains that may arise from the disposal of other property investments?  If I had a 1231 loss in 2019, where would I see it appearing in my return and where might I trace the carryforward if it wasn't usable in 2019?  I'm not sure that I'm asking the right questions, but I'll await your response and go from there.  Thank you. 

[tagteam]

---

@Curious One wrote:

.....I'll await your response and go from there.  Thank you. 

---

@Curious One 

Note that @DianeW777 is an "Expert Alumni" and, as such, does not post here regularly (or at least has not posted here since April of this year).

As a result, you might want to start a new thread for your question (and issue).

Specifically, Section 1231 losses are ordinary losses and can be used to offset other types of income (but note that they must be netted against Section 1231 gains).

[Curious One]

@Critter-3  Thanks for your feedback on my PAL question above, but in reviewing TurboTax article Selling Rental Real Estate at a Loss - TurboTax Tax Tips & Videos (intuit.com), it seems that the suspended PALs can only be applied to the specific asset against which they were generated.  Consider: Deducting passive activity losses

If your rental property has generated losses in past years, you might have suspended passive activity losses (PALs). You can generally deduct these passive losses only against passive income, which can be from other activities such as rentals or other passive business activities.

Fortunately, you can also deduct suspended PALs when you sell the property that generated them. If you sell a rental property with suspended PALs, you may be able to deduct them on top of deducting any Section 1231 loss from the sale. Like Section 1231 losses, deductible PALs can offset other income and also create or increase an NOL that you can carry backward or forward.

Does the emphasized sentence have any bearing on the question - PALs on certain assets released when other assets are sold?