Rental loss carryover

[gregbe2000]

In 2021, I rented out two properties.  They each had a loss.  I moved into one of the properties in 2021 and I'm still renting out the other one.  For my 2022 taxes, am I allowed to use the carrover loss for the property I moved into in 2021 to offset the gains of the property I rented out in 2022?  In TurboTax, for rentals, I need to delete the property I'm not renting out in 2022 and when I do that it removes the carryover loss.  I had previously, maybe in error, thought that I could use my past property's rental net loss to offset other properties' rental gains in future years.

[PattiF]

Yes, you are allowed to use the carryover loss for the property. Did you change the status of the rental in 2021 to personal use?

You don't want to delete the rental this year to show that it was no longer rented. The change from a rental to personal use needs to be entered for the property in TurboTax and should have been entered for Tax Year 2021 when the conversion took place. If you did not enter the change for your rental property for the tax year 2021, you will need to amend the tax return from the prior year to show the change.

Here is a thread that discusses changing a rental to personal use.

[gregbe2000]

Thanks for the reply!  I used Turbo Tax Live last year since my situation was unique.  What was unique is that I purchased a home in May 2021 that I immediately rented out for 3 months.  I then moved into the home.  The Turbo Tax form options for a rental didn't apply to this scenario (rent first, then move in during same year) but the agent eventually figured out how to input this so it showed the correct depreciation for those 3 months.   A couple questions to confirm this was done correctly in 2021:

1) On Schedule E, it correctly shows this property as having 83 fair rental days and 0 days of personal use.  On Form 4562 on line 19h it correctly shows that it was placed in service on 5/21, has the correct basis for depreciation, and shows the correct deduction in column g.  Where can I tell in my past year's return if this was changed from rental to personal use?

2) I've already deleted this property in the "2022 rentals and royalties summary".  I went through the guided options and it told me to delete it since it wasn't rented at all in 2022.  If I'm supposed to keep showing this in the rentals summary, is there a way to bring it back into the form using my 2021 inputs?  Also, this is now my primary residence, am I supposed to show this in the rental summary every year going forward even though I'm not renting it?  Thanks!

[RobertB4444]

You didn't convert it to personal use in 2021 if it had carryover losses.  When you converted it to personal use the passive losses would have been taken in 2021.  You'll need to amend your 2021 tax return to convert it to personal use and then you'll take the losses in 2021 and not have them to carryover to this year.  

Since you've converted the home to personal use you don't need to keep carrying it on your return but you should save the depreciation schedule from last year's return in order to recapture that depreciation when you sell the house.

@gregbe2000 

[gregbe2000]

Hi -

Thanks for the response.  From my understanding, I could not have taken the passive losses in 2021 since my rental losses more than offset my rental income.  Are you saying that if this property was converted to personal use then passive losses in excess of my rental gains would have lowered by 2021 taxes?

Is there anyway to determine based on my 2021 filing if this property was converted to personal use?  I filled this in while on the phone with an agent using TT Live so my hope is that there's a decent chance it was done right.

[gregbe2000]

Can I get this clarified as I'm interpreting the responses from @PattiF and @RobertB4444 to contradict each other.  I bought property 1 in 2021, immediately rented it for a few months, then moved into it later that year.  This property had more losses than income.  I rented out property 2 in 2021.  This property also had more losses than income.  So, I was planning on using these losses to offset rental income of property 2 in 2022.

@PattiF stated that I am allowed to use the carryover loss from property 1 to offset rental income from property 2 in 2022.

@RobertB4444 stated that my carryover loss from property 1 would have been taken in 2021 when I converted it to personal use.

Can I get clarification on:

1) I had a net loss on property 1 2021.  Can this loss be carried over to 2022 to offset rental income of property 2?

2) I still can't determine if property 1 in my 2021 filing was correctly converted  to personal use.  That was the intention as I filled this part out while on the phone with an agent using TT Live.  On Schedule E, it correctly shows this property as having 83 fair rental days and 0 days of personal use.  On Form 4562 on line 19h it correctly shows that it was placed in service on 5/21, has the correct basis for depreciation, and shows the correct deduction in column g.   Where can I tell in my past year's return if this was changed from rental to personal use?

[RobertB4444]

I understand why it seems that way but @PattiF and I don't contradict each other.  I just had more information than she did.

Your rental converted to personal use in 2021.  If the passive loss carried forward into 2022 then you definitely did not enter the correct information into TurboTax to show that it was converted to personal use at the end of the few months that it was rented.  You'll need to go back and correct the 2021 return.  The step by step entry for the rental property has questions regarding what dates it was available for rent and what dates it stopped being available for rent.  You need to correct those.  Then the loss will be used in 2021 and not available for carryover to 2022.  

@gregbe2000 

[gregbe2000]

Thanks.  I'm still trying to understand this, so apologize for the possibly redundant questions.

When I began filling out my 2022 taxes on TT, my property 1 (the one I rented out for a few months then moved into during 2021) showed up as a rental property.  When I followed the questions on this within TT it deleted the property (presumably since it was not rented in 2022), and my tax liability went up (although it still shows it as a rental in my State taxes) - and there is no loss being carried over in 2022.  Is there any entry in my 2021 return I can go back to and confirm that it was converted to personal use?  I want to confirm there is no need to amend.

I still don't understand what you mean by "Then the loss will be used in 2021 and not available for carryover to 2022."  How/where would the loss (that would have been my carryover loss on this property) have been used in my 2021 return?  If I can see where (what line item on what form) this would have been used, then it will help me confirm that it was correctly converted to personal use.

[gregbe2000 · Accepted solution]

@RobertB4444 

@PattiF 

Hi - I decided to upgrade to TT Live to go through this year's and last year's taxes.  My 2021 Taxes were filled out correctly in terms of Property 1 (house that I immediately rented for a few months the moved into).  It was converted to personal use.  I could have regarded this as a short term rental and not took depreciation - but I opted to depreciate to offset the rental income in 2021.  For 2022, it appears TT auto-filled in this property as a rental option and therefore carried over the loss.  When I deleted the property the carryover loss was removed.

I'm still confused on this part of your comment: "You need to correct those.  Then the loss will be used in 2021 and not available for carryover to 2022."  I don't understand what you mean by the loss being used in 2021.  My current understanding is the loss isn't used in 2021.  It's a suspended passive loss that could be used to offset income if I rented this property again or used to lower my capital gain if I sell the house.  Let me know if I'm (and the agent I talked with) have this wrong.   Thanks.

[RobertB4444]

I'm sorry, you are correct.  The losses are carried until you sell the home in a taxable transaction, not when you convert it to personal use.  That doesn't count as a complete disposition of the activity.  

That does appear that you've handled it and it is in the proper place on the tax return now, though.

@gregbe2000 

[JackK1]

I have carryover passive losses on my rental property which I did not rent in 2021 while the house was being refurbished.  In prior years when I rented the property, my AGI being low enough, TT automatically generated a Form 8582.  The allowed loss on line 16 was entered on Schedule 1 and from there to line 8 of my 1040.  There being no rental income in 2021 I followed the instruction of questionnaire and no Schedule E was generated, so no 8582, etc. I didn't notice this, because I had an AGI above the threshold for being able to use the passive loss against non-passive income.

My AGI for 2022 is back down well below that threshold, and I did not rent the property in 2022, as refurbishment continued.  Can my passive loss carryover still be used to offset non-passive income for 2022 even though I didn't rent?  Or is it only available when I am renting (or upon sale in a fully taxable transaction)?

Thank you.