Schedule E passive losses erroneously offset my capital gains

Forum|Forum|3 years ago
February 22, 2023
11 replies
95 views

Have several rental properties reported in schedule E.

some rental properties have previous years carryover losses and some have last year’s loses.

I sold ONE of my rental properties last year which created an expected tax event in the form of capital gain.

what i noticed is that turbotax took ALL of my rental properties loses (carryovers and past year) to offset the capital gains of my ONE sold rental property. To me it looks like a bug in the software.

i think the software is acting as if i disposed of all my passive activity (i.e. sold all my rental properties) which is wrong.

The correct behavior should be to apply only the sold property passive loses (carryover and last year’s) towards the capital gains of that sold rental property.

i’d appreciate any feedback here or if some technical support can confirm this issue.

TurboTax Self Employed Online

Best answer by RobertB4444

double checked. only one property is marked as sold.

to my surprise i tried the same thing with taxact and the result was the same.

i am sure there is a reason why this is happening i just want to understand why.

Because, as @KrisD15 and @ThomasM125 have said, the suspended losses are allowed to be used in the year that you dispose of one of the rental activities.

@of1

KrisD15

Level 15

The passive loss is your carry-over, not a carry-over of that particular rental.

According to the Tax Advisor:

"(Sec. 469(b)). A taxpayer can apply suspended losses against passive activity income from any source, not just from the activity that created the loss."

Additionally according to the IRS:

“DISPOSITIONS: If there is an overall loss after considering current and suspended losses against gain on disposition, the loss is non-passive. See IRC § 469(g). Thus, it enters into the modified AGI computation, and will reduce income, just as another nonpassive loss would. Stated differently, both the income and the losses enter into the MAGI computation.”

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of1Author

Level 2

469(g) is talking about “Dispositions of ENTIRE interest in passive activity. if during the taxable year a taxpayer disposes of his entire interest in ANY passive activity”

I think i was very clear about the fact i sold only 1 rental property and not disposing of the entire passive activity so unless i’m deciphering the wording incorrectly, i don’t think that rule applies to me.

ThomasM125

Level 15

When you dispose of just one of the rental activities, the suspended losses of that activity are then allowed against the resultant gain on sale of that propety in the year of the disposal. Also, the other suspended losses are then allowed against the remaining capital gains on your tax return.

@of1

{Edited 2/23/23 at 2:00 PM PST}

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