I have carry over losses on my rental property ~ will they ever expire?

Forum|Forum|6 years ago
June 7, 2019
4 replies
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I have carry forward losses on my rental properties for the last few years ~ will they expire or will they always be there. Do I have a limited time to use them or say will they still be usable if I sale the property in say 10 years?

Best answer by Belling

Rental property passive losses that are not deductible right away are called suspended passive losses. These deductions are not lost forever. Rather, they are carried forward indefinitely until either of two things happen:

you have rental income (or other passive income) you can deduct them against, or
you dispose of your entire interest in the property.

The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds trule if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity.

In addition, you must sell the property to an unrelated party—that is, a person other than your spouse, brothers, sisters, ancestors (parents, grandparents), lineal descendants (children, grandchildren), or a corporation or partnership in which you own more than 50%. And, the sale must be a taxable event—that is you must recognize income or loss for tax purposes. This means tax-deferred Section 1031 exchanges don’t count, except to the extent you recognize any taxable income. (I.R.C. §469(g).)

B

BellingAnswer

Employee

Rental property passive losses that are not deductible right away are called suspended passive losses. These deductions are not lost forever. Rather, they are carried forward indefinitely until either of two things happen:

you have rental income (or other passive income) you can deduct them against, or
you dispose of your entire interest in the property.

The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds trule if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity.

In addition, you must sell the property to an unrelated party—that is, a person other than your spouse, brothers, sisters, ancestors (parents, grandparents), lineal descendants (children, grandchildren), or a corporation or partnership in which you own more than 50%. And, the sale must be a taxable event—that is you must recognize income or loss for tax purposes. This means tax-deferred Section 1031 exchanges don’t count, except to the extent you recognize any taxable income. (I.R.C. §469(g).)

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k9nkidAuthor

Employee

if I have 3 properties and I report them separately on a sch e is that considered keeping them separate activity

Carl11_2

Employee

It is very *uncommon* for rental property to *not* show ever increasing losses on paper as the years pass; especially if there's a mortgage on the property. On your tax return the carry over losses are shown on IRS Form 8582 and you'll see that loss amount increase with each passing year.

When you combine mortgage interest, rental dwelling insurance, property taxes and the depreciation you're required to take by law, that alone can quite easily exceed your rental income for the year. Add to that the other rental expenses and that makes it rare for rental property to ever show an actual profit on paper. Therefore the total losses accumulate and just continue to increase with each passing year since you are only allowed to claim your passive losses against passive income.

Now in the tax year you sell the property you will be allowed to "realize" all those losses first against any taxable gain you may get from the sale. If it gets your taxable gain to zero and you still have more loss to deduct, then you're allowed to claim it against other "ordinary" income - such as any W-2 income you may have that year.

Depending on your total AGI your loss for the year could be limited to as little as $3000. But that's still not a problem because the remaining loss is just carried over to the next year where the same rules apply.

Now in the tax year you sell the rental, if you report the sale in the rentals & royalty income section of the program, it will take care of all this for you automatically in the background. However, if your AGI is high enough to actually limit your "allowed" loss that year, the program will not always automatically carry that over to next year's taxes. So that's why once your tax return is accepted by the IRS, you want to print out a copy of *every* *thing* and not just the forms needed for filing or the forms to "keep for your records".

The IRS Form 8582 will show your loss amount that was not allowed that year (if any) and you "may" have to manually claim/enter that amount in the program when you do your taxes next year.

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gll

Thank you so much for this info. I have been searching for a while and am happy to hear that net passive losses after the sale of the rental property can be used against W-2 income, since that is the only other income we have. Limited as it is, at least you can carry it forward and continue using it against ordinary income. Thanks again!

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Jay410

How do I use my suspended passive losses in turbo tax when I have a gain on another rental? It seems to only be taking away from this year and not from my suspended losses from my other property over the last 6 years. I thought my gain would be taken away from my passive losses and I will not pay taxes on it.

Critter-3

Did you sell the property? If not then the passive losses happen due to your income being too high and a cap gain cannot release a passive loss no more than you can make orange juice out of apples.

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Jay410

I did not sell it. I have both of them. One has suspended losses of 40K. I know it is because my income is too high. I have a gain from another rental of 5K this year. I thought rental gains can be deducted from another rentals suspended passive losses. Does that make sense? Any help would be appreciated.

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palankau

I had a rental property for which I accumulated carryover losses in consecutive years due to higher than allowed incomes. I later ceased renting the property and moved back in as my primary residence, but I have these unallowed losses. Am I able to utilize them now or only when I sell the house or ever?

LeonardS

You will have to wait until you sell the house then you may use the carry-over losses to reduce your gain on the sale of the property.

@palankau

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seleam

Employee

I saw your reply and wanted to ask a further question.

We bought a house in 2010 rented it out for 3 years. We had loss carry forward of 3,980. I understood that I could only take that when we sold the house. We lived in the house from 2013 and have sold the house in 2021. Where do I put it in turbo tax? Is it in the adjusted cost basis easy guide that increased the cost of our home? I am having a hard time finding where to input it. Thank you for your help.