Manually recording previous years suspended passive activity losses when rental converted to personal use

[AAW]

"I converted a rental to personal use in 2015. 2016 TT return correctly carried forward 20K passive loss from 2015. Since not rented in 2016 and I checked option to never tried to rent, TT removed rental property from schedule E and removed suspended loss from 8582. If in future years I convert back to rental or sell do I have to manually keep a record of previous years passive loss?

[view2 · Accepted solution]

 manually keep a record of previous years passive loss?

Yes

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.

Or to rental.

A former passive activity is any activity that was a passive activity in a prior tax year but is not a passive activity in the current tax year. A prior year unallowed loss from a former passive activity is allowed to the extent of current year income from the activity.

[AAW]

Thanks for your help.

[view2]

Your welcome.

[lukechalmers]

I have a similar situation.  I have passive activity losses from 2015 that I could not take because my income was to high.  I converted that home from a rental to a personal residence in 2015 as well and thus did not rent it in 2016.  Turbo tax removes the property when I select that the property was not rented in this tax year.  Is there any way to claim that former passive activity loss?  Or do I have to wait until the home is sold?  (The home was only rented for 1.5 years total out of 10 years of ownership).  

Thanks!

[MANDRUMS]

Good answer.....but when someone sells the rental to second home at some point in the future, TurboTax Deluxe does a good job of asking for basis, additions to basis, recapturing depreciation for recapture tax but does not show you how to enter those suspended passive losses which are now deductible ?????  Where does one capture that info so taxpayer can take advantage of what he/she is entitles to ?

Thanks

Mike 

[JulieS]

There is a place to enter your passive activity losses in the rental section. When you enter the rental into Turbo Tax:

1. Look for the screen that says, Do Any of These Situations Apply to This Property? at the top. It is in the Property Profile section.
2. Scroll to the bottom of the list and find Carryovers.
3. Check the box next to I have passive activity real estate losses carried over from a prior year.
4. Click Continue and enter your carryover amounts. 

You can use the losses in a year when you have passive income, or in the year that you dispose of the property. 

[Y2K4JC]

We have the same issue.  We had a rental with passive losses from prior years, converted it to our primary residence then sold it after 3 years.  There is a place for depreciation carryover, but not passive loss carryovers.  Has anyone found an answer for this?

[DaveF1006]

There is a place to enter prior passive loss carryovers. 

1. Go to federal>wages and income>rental properties and royalties>rental properties and royalties (Sch E)>start
2. First screen should say is this a rental property or royalty>rental property
3. After you enter the information it will ask what type of a rental is it
4. After you answer the question, you will arrive at a screen that asks, do any of these situations apply to this property?
5. At the bottom of the screen is where you will state you had passive real estate losses from a previous year. the next screen will allow you to enter that information. 
6. If you already have this listed as a rental, you will need to go into property profile to get to that page where you enter the passive loss information as described above.

[Y2K4JC]

Hi Dave.  I attempted this; however, it only allows an entry if it was rented in 2019.  We removed it from rental in 2015, converted it to our second home and then in 2016 to our primary and sold it in 2019.  If I add it as a rental property as you suggested, it will allow the entries, but then tells me to delete the entry as a rental property since it was not rented, nor attempted to be rented, at any time during 2019.

[DaveF1006]

You will report this as a sale of your main home:  Do this by:

1. Go to federal>wages and income>all income

2. Less Common Income>Sale of Home (gain or loss)>start

3. As you go through the questions, the program will ask if you took depreciation after may 6, 1997.You will answer this because you did rent out your home and this is where you report depreciation taken.

4. Since this isn't a rental now, you won't be able to claim those passive losses from previous years because there is no passive income to offset. 

[fcphollis]

Hi,

thanks for that hint. Is there a "bankable source" somewhere for this, i.e. keeping manual files for the carryover? I am concerned that it is too late if I pull out my form 8582 from 2018 once I sell the house in 5 years.

Thanks, Frank

[Carl]

Example:

You purchased rental property in 2010 and rented it out from 2010 through 2015. In 2015 you converted it to personal use and lived in the property as your primary residence from 2015-2019.

Then in 2019 you converted the property back to personal use.

TurboTax *CAN* *NOT* *CORRECTLY* handle this situation. You have to fanagle the dates for the program to handle it correctly. So lets get down to more specifics to show how this is done.

When you converted the property to personal use in 2015 you "should" have printed out the 4562'a showing the total depreciation taken on the property to date up to the date you converted it to personal use. You should have also printed the 8582 showing the total of all passive loss carryovers up to the date you converted it to personal use.

Let's say you converted it to personal use on June 30, 2015 and converted it back to a rental on July 1, 2019. That is "exactly" three years to the day.

If you originally placed the property in service in 2010, then you will need to "shift" your personal use for three years, to the the first three years you owned the property. So on your 2019 return you will change your "in service" date from whatever day in 2010 you originally placed it in service, exactly three years forward to 2013.  The program will then be able to "correctly" account for all prior year's depreciation already taken and will not "flag" the prior depreciation number you will enter, as being in error or to far off.

One problem that can (and will) arise if if the in service date is "shifted" to certain months, then instead of using mid month convention for that first year, it "might" use the Half Year convention, thus making it impossible to get your "prior years depreciation already taken" figure to be accepted as correct by the program.

[AmeliesUncle]

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@fcphollis wrote:

Hi,

thanks for that hint. Is there a "bankable source" somewhere for this, i.e. keeping manual files for the carryover? I am concerned that it is too late if I pull out my form 8582 from 2018 once I sell the house in 5 years.

Thanks, Frank

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You can't do it correctly with TurboTax.  The program is faulty and won't let you file the required Form 8582 without also reporting a rental property.  And the developers refuse to correct it.