Passive activity losses

Forum|Forum|1 year ago
March 19, 2025
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I have several years of passive activity losses on my rental property. Now that the property is sold, do those accumulated losses offset the basis and thereby reduce my capitol gain?

MinhT1

Yes.

Suspended passive losses cannot be used to offset depreciation recapture.

But you can fully deduct these suspended passive losses when you sell your rental property in a qualifying disposition.

Under IRC § 469(g), a “qualifying disposition” requires three criteria:

1. Disposition of an entire interest (or substantially all)

2. In a fully taxable event (where all gain/loss is realized and recognized).

3. To an unrelated party.

In order to release the suspended losses, there must be a complete disposition to an unrelated party in which all gain or loss realized is recognized. In other words, the gain or loss must be recognized, but not necessarily included in gross income.

Please read this IRS document for more information.

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