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

[AmeliesUncle]

No, Carryover Passive Losses do not affect the Basis of your house. 

One option is to create a fictitious rental property (with $0 income and $0 expense), enter the carryover and say the rental was sold.  That will 'release' the Passive Loss Carryover and it will show up on Schedule E.

Another option is to find the section to report "other income" and report it as a negative amount.

[dhardegree]

How about help with this one - I have a final limited partnership K-1 with a Section 1231 gain.  TurboTax transfers this to  form 4797 and uses it to reduce my long term capital loss carry forward from last year, therefore no tax.  I also have rental property schedule E with a loss carry forward and turbo tax is also using the K-1 Section 1231 gain to reduce the schedule E loss carry forward.  The net calculates a reduction in income and reduces both my capital loss carry forward and my Schedule E loss carry forward. This is double dipping.  The schedule E loss carry forward should not change since I used the Section 1231 gain against capital loss carry forward.  I can not figure out how to correct this in the software.

[AmeliesUncle]

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@dhardegree wrote:

How about help with this one - I have a final limited partnership K-1 with a Section 1231 gain.  TurboTax transfers this to  form 4797 and uses it to reduce my long term capital loss carry forward from last year, therefore no tax.  I also have rental property schedule E with a loss carry forward and turbo tax is also using the K-1 Section 1231 gain to reduce the schedule E loss carry forward.  The net calculates a reduction in income and reduces both my capital loss carry forward and my Schedule E loss carry forward. This is double dipping.  The schedule E loss carry forward should not change since I used the Section 1231 gain against capital loss carry forward.  I can not figure out how to correct this in the software.

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I think the software is doing it correctly.

The final K-1 gives you a passive gain.   While that allows the passive losses to be 'released', you still need to account for the passive gain, which is why it is still reported as a capital gain.

[dhardegree]

So if the software is correct, then I do receive a very nice tax break.  One tax CPA I mentioned this to said it was double dipping but he was not familiar with Turbo tax.

[dhardegree]

Also to restate, this passive section 1231 gain on the K-1 allows me a tax benefit on my Schedule E rental property.

[AmeliesUncle]

Yes, that is correct.

[dhardegree]

Thanks!!!

[jacs810]

Hi

Thanks for the detailed explanation on realizing the passive losses upon selling the property.

So, if I sell my property, do I still file form 8582?

My TT H&B 2021 did not generate 8582 for my return. So I am wondering if there is some mistake somewhere. I sold the property in 2021.

Thanks a lot.

[tagteam]

Suspended passive losses (on Form 8582) are released in the tax year the property is sold to a third party in a taxable transaction.

[jacs810]

Thanks.

I am still not clear if I need 8582 this year, (to take the released passive losses) considering that the property is sold.

[tagteam]

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@jacs810 wrote:

I am still not clear if I need 8582 this year, (to take the released passive losses) considering that the property is sold.

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You will not have suspended passive activity losses (no Form 8582) if the property you sold was your only activity subject to the PAL limitations.

[shiyi11]

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/re-i-have-carry-over-... 

It makes senses to me that the rental loss can be carryover during the rental property ownership time. However, the claim of "total losses accumulated can be carryover even after the sale of ownership in rental property" is new to me and slightly questionable in my understanding of the tax code.

@Carl Could you please kindly supply some references for such claim?

Thank you so much for your time.

[RobertB4444]

In that particular instance @Carl was talking about if your passive losses exceeded all of your income.  At that point your passive losses become an NOL and you can carry an NOL forward pretty near indefinitely - or until your income wipes it out.

@shiyi11 

[tagteam]

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@shiyi11 wrote:

....the claim of "total losses accumulated can be carryover even after the sale of ownership in rental property"......

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The sale of residential rental property is essentially treated as the sale of business property, which can create an NOL. 

Upon the sale of rental property to an unrelated third party in a fully taxable transaction, all suspended losses are released (no longer carried forward) and, as a result, have the potential to create an NOL.

See https://www.law.cornell.edu/uscode/text/26/469 (Section 469(g))

[Also note that Carl's post in the thread you referenced (the post that was cheered five times, no less) contains some incorrect information - the first answer, marked as the Best Answer, is correct]

@shiyi11