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Transfer of suspended losses from relinquished property to replacement property-1031 Exchange


mircpa
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Does anyone knows how do I move suspended losses in Form 8582 for given up property to replacement property.

I am able to include for replacement property as previous year real estate losses,  but unable to figure out how to knock off from relinquished property in ATX. I believe I had to do this in K1 Input screen.

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2 hours ago, Abby Normal said:

Are you sure you can't deduct those losses due to disposition? I've never had a case like this.

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).

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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.

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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.

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6 hours ago, mircpa said:

I need to talk to ATX to find out.

 

22 hours ago, DANRVAN said:

There is an input tab for Schedule E to enter the loss limitations.  It will carry over to form 8252.

Also use that tab if you have a new client with suspended loss.

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9 hours ago, jklcpa said:

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.

Correct, the release of the suspended loss would offset the recognized gain from the boot.

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@DANRVAN

I am able to show/carry suspended losses from relinquished property to input screen of replacement property.

How do I knock/take off suspended losses from relinquished property? Is there any place in K1 Input screen for S corporation.

Suspended gets released only in case of sale or boot. This is neither sale nor boot involved. This is exchange.

These losses are coming from an S corporation owning real estate so Sch E does not apply

I have to go through K1 Input screen for S corporation.

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11 hours ago, mircpa said:

I have to go through K1 Input screen for S corporation.

Since the suspended loss occurs at the shareholder level, I don't see why you would change anything at their level.

For example, if the individual had a $50,000 prior years suspended loss from the Sub S, it would remain on his/her K-1 input sheet for ATX and continue to flow to form 8582 as such, regardless of the exchange of property within the corp.

At the shareholder's level, the S-Corp is the passive activity that is limited on form 8582, so there is no change in this situation.

If there was a change, you would make it on the K-1 input sheet for the individuals personal income tax return.

Does that make since or am I missing something here?

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OK

I can have those suspended losses from relinquished property continue in 8582 to be recaptured from any future rental incomes or capital gain.

But if IRS instructions says to transfer losses I am thinking there should be some way out.

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On 6/7/2022 at 10:33 AM, mircpa said:

IRS instructions says to transfer losses I am thinking there should be some way out.

and you have properly done that where the transfer was at the S Corp level.

Any future offset of the suspended loss will flow down the food chain via K-1.

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Thanks

Yes I do have choice of leaving those suspended losses in 8582 to recaptured in future against any rental income. I am talking to ATX to find out a way out to transfer losses to new property.

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How could there be anything to transfer from one property to another on the individual return if the exchange took place all within one S corp.

Is the new property acquired in the same S corp as the property given up, or just what piece of this puzzle are we missing?

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34 minutes ago, mircpa said:

One S corporation owning multiple properties. Relinquished and replacement property both are owned by S corporation.

In that case, there should be nothing to change as far as the PALs for specific properties on the individual return. That happens at the s corp level and the indiv shareholder receives the K-1. 

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If PALs are not moved they continue to show on relinquished property in future years. Relinquished property ceases to exist when exchange takes place.

At corporate level that property showed losses for until time it was owned and it also has previous year losses too.

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25 minutes ago, mircpa said:

If PALs are not moved they continue to show on relinquished property in future years. Relinquished property ceases to exist when exchange takes place.

At corporate level that property showed losses for until time it was owned and it also has previous year losses too.

Yes, that's true, and ALL of that should happen on the S corp return.  Are you preparing that also, and is that where your question is (?), because initially you mentioned the form 8582 and the answer your initially received mentioned Sch E and 8582 which would indicate that the discussion revolves around the individual return.

At the individual level, the shareholder receives a K-1 with one figure for the rental loss that will be passive in most cases.  At the individual level, the client must pass three limitations: basis limitation, at-risk limitation, and then finally the passive activity limitation on form 8582.  BUT, on the individual return there isn't any such reporting on a property-by-property basis of those properties held in the S corp.

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All real estate properties are owned by S corporation under its name. Each property has separate entry onto form 8825 and all its cumulative losses/income gets shown on shareholder K1. I made separate entries onto K1 input screen in individual tax return for each respective property with its respective share of rental loss or income matching cumulative K1 total, clearly marking as passive activities and it is shown as separate entries for each property in 8582.

Basis limitation 7203 is also being done.

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I see, and thank you for explaining.

Sorry I don't use ATX any more to see the actual input, but perhaps it isn't sophisticated enough to automatically transfer the unused PALs from the old to new property so that you may have to change the numbers manually.  Possibly let the program calculate the total allowed PAL for the year, if any, leaving the relinquished property on for the 2021 tax year, and then delete it at the rollover on the 2022 return and combine the carryover of PALs from the relinquished property into the newly acquired one.  That wouldn't allow the detailed worksheets to be correct, but the overall totals to 8582 and what it calculates going forward should be, I think.  

Has ATX support given you any guidance at all?

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9 hours ago, mircpa said:

I made separate entries onto K1 input screen in individual tax return for each respective property with its respective share of rental loss or income matching cumulative K1 total, clearly marking as passive activities and it is shown as separate entries for each property in 8582.

Now I  see the light, you are dealing with multiple properties within the S-Corp.  Do you use a separate K-1 input sheet for each one?

ATX allows you to manually adjust the suspended losses on the K-1 input sheets.

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Yes I do have separate K1 input entry for each property.

What I can do whatever losses showing up until transfer from relinquished property be moved to replacement property. By this way there would be zero losses for give up property. And then by doing this form 8582 would show zero losses from relinquished property.

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