Passive Income (Rental) after property is sold

Forum|Forum|2 years ago
December 10, 2023
2 replies
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Hello all,

We have a situation where our tenant owes us $20k in back rent during the time they rented our condo. We finally had them move out this month. We will sell the condo this or next month. We also had the tenant sign an agreement to pay down what they owe in 2024. We do not have an LLC for this transaction, just regular landlords. Our carry-over unallowed losses line over the years for this condo shows up as $17,380 on Form 8582.

My question is, how do we report this future passive income (backpayment) after we sold the condo? Is there an "other passive income" option when filling out the schedules, or do we need to somehow tie this income to the condo that we owned and rented out? I want to make sure that we do not get flagged for claiming the passive losses in future years (we do not / possibly will not have passive gains to offset these losses) as we are hopefully getting paid for this back rent. I keep hearing about bad debt but I am not sure if this qualifies for that.

To add, we'll be selling this condo at a $30k loss (compared to the sale price), which is going to be another topic fo passive losses I suppose? Is that another item that needs to be handled separately from above?

Thanks.

Anonymous_

Employee

Are you going to be selling the condo next year (2024) as well as receiving the (past due) income?

If so, the loss will more than offset your rental income.

nash123456Author

Thank you that’s a great point. We do not know if the closing will happen shortly in 2023 or in 2024. The buyer is extremely interested and is pushing for a 2023 closing. It may help to push it to 2024 to help with this.

However I doubt we will be able to recoup the back rent from the tenants in 2024 alone though, so I’m thinking we’ll have to deal with this scenario in 2025 also.

Regardless of when this sale happens, the back rent will still be paid to me after the sale of the condo. How does TurboTax deal with this? I am sure it will ask for the date of sale, but it won’t ask the dates that I received the back rent in 2024 so if all transactions are done in 2024 then it may not matter. But if I still receive back rent payment in 2025 it may be an issue?

Anonymous_

Employee

If the sale happens in the same year as the past due payment, there will be no issue whatsoever, but is the condo still available for rent?

Mike9241

whe you fully dispose of rental real estate in a taxable transaction the passive nature is gone. any suspemded passive losses will be allowed as non-passive. even the loss on sale is not passive. it should flow to form 4797 and from there to line 4 of schedule 1.

so if you sell the property in a year before receiving the final rent, I would treat the rent as nonpassive - other income.

Anonymous_

Employee

@Mike9241 wrote:
so if you sell the property in a year before receiving the final rent, I would treat the rent as nonpassive - other income.

I would tend to agree because if the condo is the only rental real estate and it is already sold, there should be no more suspended passive losses (from operations).