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Stephanie B.
Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 556
Experience:  MTax, EA, QuickBooks Proadvisor. Over 15 years accounting and tax experience specializing in individual and small business.
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I have 125K in passive carryover loss on a rental property.

Resolved Question:

I have 125K in passive carryover loss on a rental property. Should I sell that property and want to deduct those prior year losses can that be used to reduce non passive income for that year as well as any capital gains if any. Can any of the carryover passive loss amounts be carried to succeeding years?
Thanks,
JB
Submitted: 5 years ago.
Category: Tax
Expert:  Stephanie B. replied 5 years ago.

Stephanie B. :

Thank you for using Just Answer.


 


You are to deduct the carry over losses in the year the property is sold. It will reduce your non passive income without limitation.


 


The only way to carry over any additional loss is if the sale of the property creates a Net Operating Loss (NOL). If an NOL is created, you can elect to waive the carry back period and carry it forward instead. This election must be done on a timely filed tax return, including extensions.


 


If you are unsure as to if you have a NOL or if you want to carry it forward, I suggest filing an extension so you do not lose the election time. Be sure to pay whatever tax you owe when you file the extension so there isn’t penalty and interest due when you actually file the return.


 


If this answers your question, please click the accept button as this is the only way we get paid for the assistance we provide to you.

If you need more clarification, please let me know. If I am not available at the time, I will be.

I appreciate the opportunity to assist you and I look forward to your response.

Stephanie


 


 

Stephanie B. :

Here are some links regarding the information that I gave you. Here is the link to the 8582 Instructions. Look on page 7 at the Dispositions section. http://www.irs.gov/pub/irs-pdf/i8582.pdf

Stephanie B. :

Here is a link to IRS Publication 536 for NOLs. http://www.irs.gov/publications/p536/ix01.html

Customer:

stephanie,

Customer:

thanks for your response and one follow up if i may. i'm not selling the property at this time but trying to weigh options as i can't seem to get this to be profitable. just to clarify - if i do choose to sell the current carryover 125K loss can be used to reduce my current salary in the year i choose to do this?

Stephanie B. :

Are you taking the loss as a passive rental activity loss, not just a passive loss?

Stephanie B. :

It doesn't matter, just a question.

Stephanie B. :

The rules state that if you dispose of your entire interest in a passive activity to an unrelated party in a fully taxable transaction, which would be selling the property and reporting a gain or loss, you can take the current year loss in full. Also, when reporting the entire disposition on form 4797, which would be how you would report the sale of your rental property, you can deduct the prior year unallowed losses on the normal schedules, which would be Schedule E in your case.

The entire loss less your rental income on your Schedule E will then flow to the front of your 1040 and will reduce all your other income, including your wages.

Stephanie B. :

It is good that you are thinking about your options so you are able to plan.

Customer:

yes. passive activity loss.

Customer:

it's frustrating as it's a small studio in manhattan in a primo doorman building but buying high 6 years ago and the rents not keeping up i'm "losing" $500 a month or so before any deductions. i don't see this getting profitable soon. my current income is around 170K so at least that option is there should i choose. thanks again for your assist and i will be in touch. i'll indicate for payment now as well.

Customer:

thanks,

Customer:

jb

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