passive losses to offset capitol gains

Forum|Forum|3 years ago
March 13, 2023
2 replies
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I have a tax question about passive RE losses and LTCG's from sale of passive RE investments.

Specifically this year I have a small cash out of a 1031 exchange of DST'S (Delaware Statutory Trust).

I have net passive losses from other passive RE investments of DSTs.

I have net losses from rental properties which the IRS seems to treat as passive losses but separately from those above.

HOWEVER, neither of these categories of losses offset the smaller long term capital gain from the 1031 exchange?

This seems counter to what I have read and heard in various sources.

I am using Turbo Tax Premier. No TURBO TAX BASHING PLEASE.

Cheers

Best answer by Anonymous_

Generally, passive losses can only be used to offset passive income.

Suspended passive losses can be used to offset passive income from the same or similar activity (i.e., rental activities). Suspended passive losses cannot be used to offset other types of income, such as capital gains, until the underlying passive activity is disposed of in a fully taxable transaction to an unrelated third party.

Anonymous_Answer

Employee

Generally, passive losses can only be used to offset passive income.

BuddyonTTAuthor

I SEE. The LTCG has to come from a taxable transaction, and the boot from a 1031 exchange is not FULLY taxable. My bad.

BuddyonTTAuthor

@MonikaK1 ,

Thanks for you help.

Can you tell me why TT treats rental gains and losses separately from other passive (DST'S) gains and losses.

My LTCG was in fact a cash out boot from a 1031 exchange. TT worked fine in doing the 1031 return from the reported exchanged and replacement DST. TT calculated the cash out boot correctly. Strange that the gains of other DSTS can be offset by DST losses in the portfolio but a portion of the gain from the sale of that same DST cannot be offset?

Cheers

Buddy

Anonymous_

Employee

If you enter the income (losses) from the DSTs in the same manner as to enter your other rentals, the program should treat them the same (i.e., they should offset).