Carryover losses and disallowed/suspended losses on the rental property

[MccTax 2022]

I am confused that suspended and disallowed losses are the same? I have carryover and disallowed losses on my rental property in 2020, and disallowed (suspended) losses in 2019.  I do believe the IRS allows to deduct up to $25,000 of rental property loss if income is $100,000 or less. Can I deduct the above losses  (from 2019 and 2020) in the 2021 year tax return? 

[ColeenD3]

Yes, the confusion is that your disallowed losses are "suspended" until such time as you can take advantage of them.

Treatment of former passive activities.

A former passive activity is an activity that was a passive activity in any earlier tax year but isn’t a passive activity in the current tax year. You can deduct a prior-year unallowed loss from the activity up to the amount of your current-year net income from the activity. Treat any remaining prior year unallowed loss like you treat any other passive loss. In addition, any prior-year unallowed passive activity credits from a former passive activity offset the allocable part of your current-year tax liability. The allocable part of your current-year tax liability is that part of this year's tax liability that‘s allocable to the current-year net income from the former passive activity. You figure this after you reduce your net income from the activity by any prior year unallowed loss from that activity (but not below zero)

Any passive activity losses (but not credits) that haven’t been allowed (including current year losses) are generally allowed in full in the tax year you dispose of your entire interest in the passive (or former passive) activity. However, for the losses to be allowed, you must dispose of your entire interest in the activity in a transaction in which all realized gain or loss is recognized. Also, the person acquiring the interest from you must not be related to you.

PUB 925

[morsalean]

Neither the software nor the agent can make this right.

Don't waste your time. Just return the product for a full refund.

I am so disappointed.

Morsalean

[MccTax 2022]

Thank you for your answer. I am sorry still it's confusing and complicated to understand. Can I deduct both carryover and unallowed/suspended losses of 2020 in the 2021 tax file? 

When or how I can claim the unallowed losses of 2019? Or only I can take a deduction of the 2019 year's losses if I sell the rental property within the last year? 

[JulieS]

When you can deduct your losses depends on your overall income and whether or not you still own the property at the end of the year. 

One thing I can make clear is that your 2019 losses carry forward to your 2020 return. On the 2020 return, the 2019 losses and your current losses are combined to determine the amount that carries forward to 2021

So you are only dealing with the prior years losses, but that loss may be partially due to losses form earlier years. 

Over time, the amount of unallowed / suspended losses grows. In the year you sell the property, all of your unallowed / suspended losses can be deducted. That can help offset your gain on the sale of the property. 

[MccTax 2022]

Thank you very much. I thought I can deduct both carryover and unallowed losses of 2020 in the 2021 tax file because the total amount is less than $25,000.

Can you tell me, on the 2020 Return, where I can find the losses amount that carried forward to 2021  (Schedule E or Form 8582- under what section or part) ? 

Can I deduct the unallowed/suspended losses at any time when I sell the property, I say after 2-3 years? 

[ThomasM125]

@MccTax 2022 Your 2020 passive loss carryover is the loss amount on line 3 of your 2020 form 8582 (your passive loss from 2020) less the amount that was allowed in 2020, as reported on line 11 (total losses allowed.) You can deduct any unused losses when you sell the property in a qualifying disposition (special rules apply if you sell to a related party.)

[MccTax 2022]

Thank you very much for your answer. On lines 3 and 11 of my 2020 form 8582 (page #1), the lines are empty, not displaying any information. I have some numbers on lines 1, 4, 10, and 16.  

[DianeW777]

There may not be a loss to carry forward. The amount on line 16 is the amount of allowed loss you had for 2020.  This means that number was used on your tax return in 2020.  Lines 1 and 4 are the same amount and included in line 16.

If there is anything on Worksheet 5 or Worksheet 6 on page 2, this would be the unallowed losses you could carry to your 2021 tax return. If these lines are blank, there is no passive activity loss to carry forward from your 2020 tax return.

@MccTax 2022

[MccTax 2022]

Thank you for taking the time to answer my question. I have PAL in 2019 & 2020, but for some reason, it messed up in the 2020 return. Lines 1 and 4 are the same amount, but different from the amount in line 16. I have the unallowed losses on Worksheets 5 and 6 on page 2 which I will carry to my 2021 tax return. Thank you again. 

[papa281]

I bought a condo in 2013 for $230,000 and have rented it a few months each year.  Because by AGI is over the limit, I have never received any deductions on my taxes.  I have suspended loss of $110,000 and disallowed loss of $130.000.  On the Depreciation and Amortization Report the Cost (Net of Land) column total is $255,870; the The Section 179 column is $1,937; the Depreciable Basis column is $236,513; the Prior Depreciation column is $93,205.   If I sell the condo for $500,000 how do I figure out the capital gains and what do I do with the disallowed and suspended losses since I never have received and tax deduction that I would have to pay back.

Hope you can help me out?   [email address removed]

[PatriciaV]

If you have been using TurboTax in the past, your passive losses have been carried over in your tax file and will be applied when you report the sale.

If this is the first year you have used TurboTax, you can enter the information for your rental property, including passive loss carryovers. Then report the sale and TurboTax will help you determine the outcome.

Additional Information:

• IRS Pub 527 "Residential Rental Property"
• Where do I enter income and expenses from a rental property?
• What kinds of rental property expenses can I deduct?
• How do I handle capital improvements and depreciation for my rental?
• I sold my rental property. How do I report that?

[papa281]

When you sell what are the suspended and unalloyed losses subtracted from?  

[GeorgeM777]

If the sale of your condo is a complete disposition of the property, that is you don't maintain any ownership interest, and you have not sold the condo to a close relation, then your suspended losses (probably passive losses) become ordinary losses and can be used to offset ordinary income.  Thus, the losses you were never able to use can be used to offset any gain on the sale of the condo.  If you still have losses after offsetting your gain from the sale of the condo, those leftover losses can offset other forms of ordinary income such as wages.  

@papa281