Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

sale of property with unallowed passive losses

LSTAX
Level 4

Do all of the previously unallowed passive losses get deducted on line 8 of the 1040 when a rental property is disposed of?  My understanding is that in the year of disposition, all passive losses and carryforwards are deducted.  I just want to make sure the passive losses can truly be included on line 8 to be used against all income not just against profit from the sale.

I entered the disposition from the depreciation screen,  as a bulk sale and the sale is reported on 4797 part III with depreciation lowering the basis creating a small gain.  This year, there is no form 8582 but the entire unallowed passive losses from last year's 8582 and a current loss from this year are reported as a large loss on 1040 schedule 1 line 5 and 1040 line 8 and it is reducing the ordinary income by that large loss.

Labels (1)
0 Cheers
1 Solution

Accepted Solutions

Do all of the previously unallowed passive losses get deducted on line 8 of the 1040 when a rental property is disposed of? 

Yes

 

My understanding is that in the year of disposition, all passive losses and carryforwards are deducted.  I just want to make sure the passive losses can truly be included on line 8 to be used against all income not just against profit from the sale.

Yes.

 

I entered the disposition from the depreciation screen,  as a bulk sale and the sale is reported on 4797 part III with depreciation lowering the basis creating a small gain. 

Yes. 

In Lacerte, For a complete disposition, In Depreciation screen, enter a 1 in the Misc section under Sale of Asset to indicate complete disposition.  On F4797 EDPA will be added in front of the asset description.  EDPA = Entire Disposition of Passive Activity.

 

This year, there is no form 8582 but the entire unallowed passive losses from last year's 8582 and a current loss from this year are reported as a large loss on 1040 schedule 1 line 5 and 1040 line 8 and it is reducing the ordinary income by that large loss.

Yes. 

(and no - If you have another Passive Activity, F8582 is generated showing only the remaining Passive activity(ies)). 

 

View solution in original post

6 Replies 6
George4Tacks
Level 15

Why no 8582 this year? I would think that even with an early January sale, there should have been something regarding property taxes.

When you indicate 1=delete this year, or 2=delete on the Rental Income screen 17, and show total disposition on the bulk asset sale, that will properly release all of the prior unallowed passive losses for that property.  My guess is that it should be 2=delete next year and some income and/or loss for the year. 


ex-AllStar
0 Cheers
LSTAX
Level 4

There is a small loss on schedule E because of interest and property taxes.  Are the freed up passive losses 100% deductible even against wages and ordinary income?

George4Tacks
Level 15

Yes. If large enough AND they have a large enough BASIS. It could even create an NOL that could be carried back to prior years. 


ex-AllStar
George4Tacks
Level 15
LSTAX
Level 4

Thank you! It's such a large number it wipes out most of their wage income but does not create an NOL.

 

0 Cheers

Do all of the previously unallowed passive losses get deducted on line 8 of the 1040 when a rental property is disposed of? 

Yes

 

My understanding is that in the year of disposition, all passive losses and carryforwards are deducted.  I just want to make sure the passive losses can truly be included on line 8 to be used against all income not just against profit from the sale.

Yes.

 

I entered the disposition from the depreciation screen,  as a bulk sale and the sale is reported on 4797 part III with depreciation lowering the basis creating a small gain. 

Yes. 

In Lacerte, For a complete disposition, In Depreciation screen, enter a 1 in the Misc section under Sale of Asset to indicate complete disposition.  On F4797 EDPA will be added in front of the asset description.  EDPA = Entire Disposition of Passive Activity.

 

This year, there is no form 8582 but the entire unallowed passive losses from last year's 8582 and a current loss from this year are reported as a large loss on 1040 schedule 1 line 5 and 1040 line 8 and it is reducing the ordinary income by that large loss.

Yes. 

(and no - If you have another Passive Activity, F8582 is generated showing only the remaining Passive activity(ies)). 

 

View solution in original post