Suspended passive loss of a rental property converted to primary residence to offset another rental

[Frank666]

• Property A was rented with $X suspended passive loss, and then converted to primary residence
• Can I use $X passive loss from property A to offset the gain from Rental Property B even if property A is currently not a rental anymore? 
• If yes, how can I report it in tax return (Schedule E) since property A is not a rental property anymore?
• How do I keep the passive loss $X record in tax returns during the years when property A is not a rental?

Thanks!

[DianeW777 · Accepted solution]

Yes, you can carry the passive losses to other passive activity income properties.

• You can only deduct suspended passive-activity losses in two situations:  
  • Against passive-activity income (your other rental activity when there is a positive income)
  • When you dispose of the passive activity in a fully taxable transaction to an unrelated party (a future sale of property A)

When you converted rental property into a personal home.

The rental home had suspended passive-activity losses. You can continue to deduct the suspended passive activity losses from other passive income. If you have no other passive income, the suspended losses remain suspended. Carry them forward until you sell the home in a fully taxable transaction (noted above).

• IRS Publication 925

[Frank666]

Thank you for your reply and confirmation! Here are my follow-up questions:

• When I have no other positive rental income to offset, do I need to keep the suspended passive loss $X record/carryover in each year's tax return? If I do, where in the tax forms? since property A is not a rental anymore, I don't think I can include it in Schedule E, right?
• If I don't need to keep the suspended passive loss $X in each year's tax return, several years later (say 2030) when I have positive rental income to offset, do I just add $X carry over loss in the Schedule E only in that year 2030?  

Thanks!

[Frank666]

@DianeW777 could you please help answer my follow-up questions above? Thank you!

[DianeW777 · Accepted solution]

No, if you have no rental property/activity, then you keep the information until you fully dispose of the property through sale. It is not reported on the tax return since you do not have an active rental property.  

Yes, you will include it when and if you begin a rental activity and/or until you sell the property. Likewise you will need all depreciation on the building and any asset attached to the rental activity until each one is disposed of which will be a taxable event if sold.

What you do need to do is keep the 8582 and all tax return(s), including worksheets that relate to this property.  Those tax records do not carry a 'statute of limitations' as long as they remain attached to any future tax return.

@Frank666 

[Frank666]

Great! Thank you DianeW777 for your detailed explanations!