Property A was rented with $X suspended passive loss, and then converted to primary residenceCan I use $X passive loss from property A to offset the gain from Rental Property B even if property A is currently not a rental anymore? If yes, how can I report it in tax return (Schedule E) since property A is not a rental property anymore?How do I keep the passive loss $X record in tax returns during the years when property A is not a rental?Thanks!

Yes, you can carry the passive losses to other passive activity income properties. You can only deduct suspended passive-activity losses in two situations: Against passive-activity income (your other rental activity when there is a positive income) When you dispose of the passive activity in a fully taxable transaction to an unrelated party (a future sale of property A) When you converted rental property into a personal home.The rental home had suspended passive-activity losses. You can continue to deduct the suspended passive activity losses from other passive income. If you have no other passive income, the suspended losses remain suspended. Carry them forward until you sell the home in a fully taxable transaction (noted above). IRS Publication 925

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Frank666

Solved

Suspended passive loss of a rental property converted to primary residence to offset another rental

Forum|Forum|2 years ago
March 16, 2024
1 reply
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Property A was rented with $X suspended passive loss, and then converted to primary residence
Can I use $X passive loss from property A to offset the gain from Rental Property B even if property A is currently not a rental anymore?

If yes, how can I report it in tax return (Schedule E) since property A is not a rental property anymore?
How do I keep the passive loss $X record in tax returns during the years when property A is not a rental?

Thanks!

Best answer by DianeW777

Yes, you can carry the passive losses to other passive activity income properties.

You can only deduct suspended passive-activity losses in two situations:
- Against passive-activity income (your other rental activity when there is a positive income)
- When you dispose of the passive activity in a fully taxable transaction to an unrelated party (a future sale of property A)

When you converted rental property into a personal home.

The rental home had suspended passive-activity losses. You can continue to deduct the suspended passive activity losses from other passive income. If you have no other passive income, the suspended losses remain suspended. Carry them forward until you sell the home in a fully taxable transaction (noted above).

IRS Publication 925

DianeW777Answer

Yes, you can carry the passive losses to other passive activity income properties.

You can only deduct suspended passive-activity losses in two situations:
- Against passive-activity income (your other rental activity when there is a positive income)
- When you dispose of the passive activity in a fully taxable transaction to an unrelated party (a future sale of property A)

When you converted rental property into a personal home.

IRS Publication 925

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Frank666Author

Thank you for your reply and confirmation! Here are my follow-up questions:

When I have no other positive rental income to offset, do I need to keep the suspended passive loss $X record/carryover in each year's tax return? If I do, where in the tax forms? since property A is not a rental anymore, I don't think I can include it in Schedule E, right?
If I don't need to keep the suspended passive loss $X in each year's tax return, several years later (say 2030) when I have positive rental income to offset, do I just add $X carry over loss in the Schedule E only in that year 2030?

Thanks!