David Posted September 1, 2015 Report Share Posted September 1, 2015 TP purchased a rental property in 2004 and rented through 2011. From 2012 - 2014 she tried selling the property and used it occasionally for vacations.She sold the property in early 2014. There is a remaining rental loss carry forward. Isn't she allowed to take this loss carry forward to offset the gain and the depreciation recapture? If so, is this reported as an increase in the adjusted basis? Thanks. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted September 2, 2015 Report Share Posted September 2, 2015 TP purchased a rental property in 2004 and rented through 2011. From 2012 - 2014 she tried selling the property and used it occasionally for vacations.She sold the property in early 2014. There is a remaining rental loss carry forward. Isn't she allowed to take this loss carry forward to offset the gain and the depreciation recapture? If so, is this reported as an increase in the adjusted basis? Thanks. Yes Quote Link to comment Share on other sites More sharing options...
SaraEA Posted September 2, 2015 Report Share Posted September 2, 2015 I disagree. The Forms 4797 and 8949 will show the usual sales price, depreciation, basis info. That info carries to Sch D. Sch D Part II is where you subtract the long-term carryover loss. Be sure to mark in the program that this is a total disposition so the carryover is freed up and becomes usable. The exception is when the disallowed losses are because of at-risk limitations. Your client cannot deduct losses in excess of her investment in the property (the amount she had "at risk"). Quote Link to comment Share on other sites More sharing options...
David Posted September 2, 2015 Author Report Share Posted September 2, 2015 Someone told me that since she was using it as a second home or investment property since 2012, that she is not allowed to take the loss carry forward that was generated from the rental period. She could only offset passive income with the loss carry forward.I don't see where that person is getting that information. I thought that the loss carry forward would be able to be taken when the property sold, no matter how the property was used after the rental period.Is my understanding correct?Thanks. Quote Link to comment Share on other sites More sharing options...
SaraEA Posted September 3, 2015 Report Share Posted September 3, 2015 If the property was sold to an unrelated party, prior passive activity losses are allowed in full (unless there are basis limitations). They can offset nonpassive income. Plug the numbers into the program and see how it comes out. Return here to verify the result. 1 Quote Link to comment Share on other sites More sharing options...
Randall Posted September 3, 2015 Report Share Posted September 3, 2015 I agree with David and Sara. When property is disposed, suspended passive losses are freed. 2 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted September 3, 2015 Report Share Posted September 3, 2015 My simple answer is still the same.Yes. Quote Link to comment Share on other sites More sharing options...
David Posted September 3, 2015 Author Report Share Posted September 3, 2015 If the property was sold to an unrelated party, prior passive activity losses are allowed in full (unless there are basis limitations). They can offset nonpassive income. Plug the numbers into the program and see how it comes out. Return here to verify the result.OK, the suspended loss wound up on Sch E and the sale showing the gain along with the depreciation previously taken were reported on 4797 and Sch D.Hopefully, this is how it should be reported.Thanks for your help. 5 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted September 3, 2015 Report Share Posted September 3, 2015 Sounds right to me. 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted September 3, 2015 Report Share Posted September 3, 2015 Me too! Quote Link to comment Share on other sites More sharing options...
SaraEA Posted September 4, 2015 Report Share Posted September 4, 2015 See, the program agrees with the IRC! Not being sarcastic here. Sometimes when you get into these esoteric situations you can't be completely confident in the software and have to check the law, as David did. We've all had cases where we knew how something was supposed to play out on a tax return but had to spend frustrating hours trying to convince the program. Other times you wonder what the software did and have to look up the rules. Nice to have this board to bounce these things around.I have clients who have a "rental" home in a warm climate. The supposedly rent it out for a few weeks a year and get "income" of $3500 or so. They visit for a couple of weeks over the Christmas holidays and again for a month in Feb for "maintenance and repairs." Yeah, right. They make way too much to qualify for any of the $25k active participation rental tax break so by now have a few hundred grand in suspended losses. Way more than their basis, so you have to wonder why they keep tempting fate and adding thousands in deductions year after year. Too bad the IRS doesn't have many auditors anymore. Quote Link to comment Share on other sites More sharing options...
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