We sold a rental property through a "like Kind" exchange. we have "Passive Loss Carryover" for the sold property. Where do we recapture?

[view2 · Accepted solution]

You do NOT recapture  "Passive Loss Carryover" in a Likekind exchanges – IRC §1031

Under IRC § 469(g), current and carryforward passive activity losses are fully deductible in the year of an entire disposition in a fully taxable transaction to an unrelated party.

 A §1031 exchange is, by definition, a nonrecognition event, there is no income against which to deduct the loss.suspended loss cannot be taken in a tax-deferred transaction.

 "Passive Loss Carryover" transfers to the new property that you bought in your exchange and will continue to accumulate with losses from the new property until you sell the new property and don’t do an exchange.

An exchange of the taxpayer’s interest where all gain or loss is not recognized does not trigger suspended losses, (such as transactions governed by IRC § 351, 721 or 1031).

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-5-...

[dermel]

Form 8582 Worksheet Allocation of Unallowed Losses lists the passive activity carryover loss with the sold property. How does the passive activity loss carryover get converted to the replacement properties?

[view2]

@dermel  ..When you are the screen "Do any of These Situations apply to This Property?"  you can  make the selection that applies to your situation by marking those that  apply from the list available.

Scroll down to the carryover, when you check the next screen gives you a place to enter the carryover.

[swcat777]

Do you mean the screen for replacement property or the original one? If for replacement one, do I manually input the carryover amount? If I exchanged one probably with two, do I split the loss into two proportional?

[bctaxservice]

I realize that you cannot take Passive loss carryover from rental loss on a 1031 exchange, my question is, do the carryover loss go against future rental income or does it get added to the adjusted basis of the old property to decrease the gain on sale of the new property?