Program is deducting passive activity loss against active income for disposed business

[lholt70]

I disposed of my photography business in 2019. I was never able to actively participate in it shortly after starting it up in 2017. Turbo tax is deducting the passive income loss and carryover from prior years against my active income. I've tried to uncheck the box for passive carryover losses in the special situation section but the program keeps checking it back. Is passive income deductible against active income when disposing of a business?

[Anonymous_ · Accepted solution]

Current and suspended passive activity losses are fully deductible if there is a qualifying disposition. 

Under IRC §469(g), a qualifying disposition is the disposition of an entire interest in a fully taxable event (where all gain/loss is recognized) to an unrelated third party.

See https://www.irs.gov/pub/irs-mssp/pal.pdf

See also https://www.irs.gov/publications/p925#en_US_2019_publink1000104640

[lholt70]

Thanks. Looks like my situation is not a qualifying disposition since i converted the assets to personal use. Therefore, it's not considered a fully taxable transaction. However, turbo tax will not let me uncheck the passive carryover box no matter what I try and continues to deduct it. 

[lholt70]

Figured out the solution to problem i created with the program. lol  I missed the taxable transaction test on the disposition section within the program since my situation was not one of the available selections.