Tracy Lee Posted March 2 Report Share Posted March 2 TP bought rental property in 2022 and took a $20,000.00 loss on it because of the amount of repairs....however they could not take their loss because their AGI was so high they phased out. They were frustrated by that and stopped renting it, effective early 2023 after they got there tax return back. They have no rental income for 2023 because they let a single mom struggling live there for free for a couple months. It is standing empty right now with plans to sell it. When I converted it to personal use in fixed assets it brought forward the entire loss and offset their income. This is great for them , but what do I do when they come back to me next year and tell me they sold it in 2024? The Schedule E and the fixed asset list will not roll forward. Does this just become a regular sale of asset and I use the original basis of the house , minus the depreciation they took and put it on Form 8949? I'm leaning towards leaving the Sch E there, taking out the 2023 depreciation and letting it show as 0 so it will carry forward. What do you suggest? I'm afraid they are going to come back next year and change their mind and turn it back into a rental. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 2 Report Share Posted March 2 I'm puzzled as to how the PAL was allowed in 2023 when the rental was not disposed of but merely taken out of service as a rental. Did they have other passive activity income in 2023, or was the property left in as rental as available for rent and income was low enough to not phase out the carryover and current year losses? What program is allowing this? PAL will only be allowed if there are other passive activity income, income is below threshold for the special allowance for loss, or the activity is fully disposed of. Taking out of service and coverting to personal use is not a qualifying disposition to allow the loss. To answer your question, if converted to personal, you are correct that the assets will not carry forward. You would have to retain all of that and enter the figures appropriately on the forms when sold, and broken down by each type of asset sold (1245, 1250, land) 2 Quote Link to comment Share on other sites More sharing options...
Tracy Lee Posted March 2 Author Report Share Posted March 2 I was puzzled by this also. I use ATX Max. There was no other passive income to offset. After research and talking to my CPA friend I decided to leave the Sch E in place with no income and let it carry forward until they sell it. Then they can take the loss. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 2 Report Share Posted March 2 I think ATX has the option to leave it there and mark it out of service. You need to do that so that it does not calculate depreciation during the period of time it was not available as a rental. Quote Link to comment Share on other sites More sharing options...
Randall Posted March 2 Report Share Posted March 2 9 hours ago, jklcpa said: I think ATX has the option to leave it there and mark it out of service. You need to do that so that it does not calculate depreciation during the period of time it was not available as a rental. Yes, I did that several years back. Client had two properties, both rental and had PAL carryforwards. Sold one, but took the other out of rental to live in. Got the PAL freed up on one, but the other was taken out of service but not disposed, so the PAL carryforward on that one is still there. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted March 2 Report Share Posted March 2 In the same vein, am I allowed to take a rental loss two years in a row on an apartment that is available for rent, but landlord has not been able to find an acceptable renter.? Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 2 Report Share Posted March 2 13 hours ago, Tracy Lee said: TP bought rental property in 2022 and took a $20,000.00 loss on it because of the amount of repairs....however they could not take their loss because their AGI was so high they phased out. I am puzzled because it sounds like the repairs were made to get the rental ready to rent in which case they should have been capitalized. Quote Link to comment Share on other sites More sharing options...
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