Sale of all rental properties with suspended passive activity losses in same year

[jsaylors1]

We owned two rental properties, both of which had suspended passive activity losses. We sold them both last year. Can I use the PAL on one to offset capital gain on the other? I am a non-real estate professional.

[MaryK4]

Yes, if you do not hold any other rental properties, this would be the complete disposition of the activity.  Unused PALs are suspended and carried forward to future years until the taxpayer disposes of the particular activity that generated the losses and you sold the properties to an unrelated party. In addition, if there are losses greater than your gain on the other rental property, any excess will lose the passive loss character and may be used to offset other income (if qualified)  See IRC 469 (g).  

[jsaylors1]

That’s what I thought. But TT is only showing the PAL from one property on the 4797. I’m using online so the only way to enter data is through the questionnaire. Help!

[DianeW777]

Be sure you indicated on each rental property that there was a complete disposition.  Double check to see if your passive activity losses (PALs) carried forward from 2020.

• Use the Search (upper right) > Type rentals > Select Edit beside your Rental Activity  > Under Less Common Business Situations > Edit Carryovers, limitations, at risk info, etc. > Continue to enter your passive loss carryover
  • The amount to carry over would be listed on your Form 8582 from your 2020 tax return on Worksheet 5 or 6.

[Critter-3]

The PAL is released to the Sch E line 18  not the form 4797.  

[jsaylors1]

Everything looks correct on the Form 4797. But on the Form 8582, Part IV is completely blank, so I can't see how lines 1a, 1b, and 1c are being calculated. I can tell that 1c includes only the Prior Years' Unallowed Losses from one of the properties. The one that is excluded has a gain on the building but a loss on the land. I've read elsewhere that a gain/loss combo can confuse TT. Grateful for your thoughts!

[Critter-3]

Once again the PAL is completely released in the year of sale to line 18 of the Sch E so the 8582 part IV should be blank. 

[jsaylors1]

Thank you all. I traced the numbers through. The 8582 still looks odd, but the rollup to the Schedule 1 and 1040 seem to be right. 

[jsaylors1]

So why does 1c on the 8582 say to enter the amount from Part IV, column c? 

[Critter-3]

Please contact support via phone for assistance with this; contact details can be found here