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I believe that taking some cash out and creating boot would allow that amount of PAL to be utilized, creating a tax-free aspect to the boot. That would involve more planning though, and they also have different rates.

They carryforward and attach to the property(ies) received in exchange. It is because the property was exchanged in a nonrecognition transaction, not disposed of in a fully taxable transaction. It's under sec 469, sorry don't have the exact reference. It's the same section that says the PALs can't be used in other nonrecognition transactions such as 351 and 721 transfers and when a passive activity property is sold as an installment sale (PAL allowed as gain is recognized in that case).

I would guess that because it was W2 income rather than SE income and it was not your brother's responsibility to report it to the SSA. Tom Longview, TX

Thanks to all Boot option is ruled since this transaction happened in 2021. I need to talk to ATX to find out. I am sure I am not the first person facing this situation. They should be having some way out of this. @Abby Normal This is not sale so therefore you cannot recapture losses, it has to pass on to replacement property, and recapture when it is finally sold.

If you would like to continue this as an extension of the topic, please do so via PMs.