Passive Asset Sale, Application of Suspended Passive Losses and Impact on Capital Loss Carryforwards

Forum|Forum|1 year ago
October 10, 2024
1 reply
0 views

Hi. I've been asking related questions about the foreclosure sale of an underperforming asset owned by an LLC I invested in. TT tax support has confirmed that I need to apply the ratable share of proceeds to my return. This resulted in the release of suspended passive losses to offset the gain and trigger additional refund. However, I see that the same amount of gain is being used on Schedule D calculations and results in a reduction of my capital loss carryforwards. This seems like a double-dip. I would think one or the other of my loss figures would be impacted, but not both. Thoughts?

TurboTax Home & Biz Windows

Mike9241

when you dispose of an activity its suspended passive losses for which you are at-risk are deductible. gain or loss can also arise if there is a difference between the proceeds and your tax basis in the venture.

an example which may be oversimplified because we don't know all the details of that activity

say you put in $50K

no money out

net losses $30K -all suspended

leaves a tax basis of $20

sell for $30K

the $30K of losses is released and you have $10K of

gain (depreciation recapture would come first and that could be IRC 1245/1250 or a combination)

your net is $20K which is simply the $50K you put in less the $30K you got out