I have carry over losses on my rental property ~ will they ever expire?

[DianeW777]

No they are not lost. Continue to carryover the losses until they are used or the property is disposed of, usually from a sale. They will not be lost but you need to track them until you sell or turn it back into a rental property.

You can only deduct suspended passive-activity losses in two situations:  

1. Against passive-activity income 
2. When you dispose of the passive activity in a fully taxable transaction to an unrelated party

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).

[gcapeling]

This post has been helpful in clarifying what is possible, but my problem is trying to get Turbotax to actually do it.  Can someone explain exactly how and on what forms to enter everything?  My situation is that I sold both (all) of my rental properties in 2021 for a gain and one of them had significant suspended losses, far more than the gains.  My understanding is that these losses should be applied to reduce the capital gains to zero and what is left should be a NOL (I think) that can be applied to ordinary income.  Right now TT is showing taxable capital gains and still carrying forward the suspended losses.  I'm a CPA (who does not do taxes for a living although I did over 25 years ago) so I just enter things on the forms instead of using the step by step.  Clearly I'm doing something wrong.  The gains seem to calculate correctly on the Asset worksheet for each property under Schedule E, but I can't figure out how to get the suspended losses to behave correctly.  I saw in a post where it said to add the losses to the basis, but I don't see where to do that either.  I only see where to enter the basis when it was acquired (Asset Entry Worksheet line 4).  Do I add the losses to line 22 "Asset expense of sale"?  If so, where do I tell TT how much of the suspended losses were used so they stop carrying forward and get the NOL entered and applied against ordinary income?

[Kay9]

I had the same problem when I sold my property in Hawaii.

TT does not create or handle NOL

I had to hire a Hawaii CPA to do my taxes and she was able to do everything with her system.

When I spoke to TT, they said it was not for sophisticated returns!!!!

[tagteam]

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@gcapeling wrote:

I saw in a post where it said to add the losses to the basis, but I don't see where to do that either.  

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@gcapeling 

Do not add your passive losses to your basis. Passive losses are added to basis (typically) when a taxpayer acquires business property (rental or otherwise) from a decedent who had (unused) carryover passive losses.

You should really follow the program and enter your properties in the Rental Properties and Royalties section. If you do so, you can then enter your carryover passive losses in the screen designed for that purpose.

[gcapeling]

I've been using Turbotax for years and using the proper schedules for everything so the carryovers are exactly where they are supposed to be.  The rental loss is in Schedule E which is the proper schedule for rentals and royalties.  Adding the losses to the basis did seem like an odd suggestion though.  The software just doesn't seem to function correctly for this circumstance unless I have missed something somewhere that would trigger it to do something differently.  It could be as simple as a checkbox I missed somewhere.

[gcapeling]

I have been considering doing exactly that.  If I override anything to make it do what it is supposed to then I can't efile.

[AmeliesUncle]

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@gcapeling wrote:

My understanding is that these losses should be applied to reduce the capital gains to zero

 Right now TT is showing taxable capital gains and still carrying forward the suspended losses. 

No, the passive losses do not affect the capital gain calculation, they are a deduction directly on Schedule E.

In the introductory part of the rental (where you enter the address of the rental, etc.), that is where you ALSO need to check the box that the property is sold in a "fully taxable transaction" (in addition to saying it was sold in the "asset" section).  That will release the Passive Loss Carryovers.

[palankau]

I had a rental property for which I accumulated carryover losses in consecutive years due to higher than allowed incomes. I later ceased renting the property and moved back in as my primary residence, but I have these unallowed losses.  Am I able to utilize them now or only when I sell the house or ever?

[LeonardS]

You will have to wait until you sell the house then you may use the carry-over losses to reduce your gain on the sale of the property. 

@palankau 

[AmeliesUncle]

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@palankau wrote:

I had a rental property for which I accumulated carryover losses in consecutive years due to higher than allowed incomes. I later ceased renting the property and moved back in as my primary residence, but I have these unallowed losses.  Am I able to utilize them now or only when I sell the house or ever?

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If you have "passive income", yes, they can be used.  Otherwise, they are usable when the house is sold.

TurboTax does this incorrectly.  You are supposed to keep filing Form 8582 every year to report those carryover losses, but TurboTax does not let you do that unless you are reporting the rental.

[RoadbikeJohn]

I have two rental properties.  Property 1 generates a profit has no PAL and is currently rented.  Property 2 was converted from rental to personal in 2021 and has PAL.  When property 2 is converted to personal in Turbotax it eliminates the PAL on 8582.   How should the PAL be recorded in Turbotax ?

[AmeliesUncle]

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@RoadbikeJohn wrote:

I have two rental properties.  Property 1 generates a profit has no PAL and is currently rented.  Property 2 was converted from rental to personal in 2021 and has PAL.  When property 2 is converted to personal in Turbotax it eliminates the PAL on 8582.   How should the PAL be recorded in Turbotax ?

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TurboTax is not set up to do it correctly.  

The only options (a) create a fictitious rental property in the program to carry over that passive loss, or (b) manually create a property 8582, override/allow any allowable passive losses, and mail your tax return or (c) prepare your tax returns some other way.

[RoadbikeJohn]

Thanks for the fast response.  Creating a dummy asset to hold the PAL seems  like the best way to use Turbotax accounting.  My concern would be triggering an audit because it would leave Schedule E with a column B having zeroes.  

[seleam]

I saw your reply and wanted to ask a further question.

We bought a house in 2010 rented it out for 3 years.   We had loss carry forward of 3,980.  I understood that I could only take that when we sold the house.  We lived in the house from 2013 and have sold the house in 2021.   Where do I put it in turbo tax?  Is it in the adjusted cost basis easy guide that increased the cost of our home?  I am having a hard time finding where to input it.  Thank you for your help.

[JillS56]

Yes, you would increase the basis property in an amount equal to the portion of the loss that previously reduced the basis of the property.  

Yes, it is in the adjusted cost basis easy guide that increased the cost of our home?