Question

Capital losses from sale of property owned by partnership

Forum|Forum|3 years ago
November 30, 2022
2 replies
0 views

In 2020 we sold a building at a loss. We didn't get a credit for the capital losses because they were passive and we needed passive capital gains to offset them. In 2021 they got carried forward. Now I'm starting 2022 taxes and we still have no passive capital gains, so I was assuming they would carry forward to 2023. But TT is using some of those losses against ordinary passive income. I'm assuming some box on the K1 is checked wrong somewhere. Where should I look?

Thanks

Not A Product Question

A

Anonymous_

Employee

Was this a rental owned by the partnership?

Typically, losses from the complete disposition can be recognized (assuming there was a fully taxable sale to an unrelated third party). Was that reflected on your K-1?

I will page @Rick19744 for input.

Carl11_2

Employee

I note it being assumed the building as rental real estate. If it was not, then let it be known please. Otherwise, the information provided will probably be wrong.

A

Anonymous_

Employee

@Carl11_2 wrote:

I note it being assumed the building as rental real estate.

Nothing is being assumed. Hence the initial question as to whether the property sold was a rental.

N

NCPERSON1

@cindi11 - I wouldn't overlook the possibility that the software has a bug; it's still early and many forms are not 'final'.

A

Anonymous_

Employee

@cindi11

I am more concerned with your 2020 K-1 (1065) and how your share of the loss was reported.

For example, if the partnership sold a commercial (nonresidential) building that was being rented to a third party, your share of the loss should likely have been passed through to you on your K-1 (specifically, on Line 10).

C

cindi11Author

The losses were reported on the K1's, and the K1 worksheets in TT are doing the calculations about which ones are allowed and which ones continue to carry forward.

Note this is the answer I got in October 2021 when I was using TT to estimate taxes thinking I was selling selling the house that year. I was surprised the losses from selling that property weren't offsetting the gains from selling my house. I was asked if I or the entity owned the property. I answered:

It's a passthrough entity (partnership) and the entity has sold the property. Are you saying the losses must be carried until the entity is dissolved or has a capital gain?
And was told: "Yes. that is the law. until your interest in that partnership is terminated (either by selling your interest or the partnership terminated) or there is a passive capital gain (1231 gain) or even ordinary passive income the 1231 loss remains suspended. if you actively participate, a lower standard than material participation, then up to $25,000 of losses would be allowed if your modified adjusted gross income is less than $150,000. see form 8582."

So what seems to be happening now is the passive 1231 loss is being used against ordinary passive income, so maybe that's what it's supposed to do?