Client moved to another state and rented out MN home for 2 years. Losses were not taken due to high income and carried forward on form 8582. Client returns to MN and home is converted back to personal use. What happens to those suspended losses? Due to health problems, income has dropped below $150K. Thanks.
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The losses remain suspended until: (A) there are other passive gains that can absorb the loss on the MN house while it was rented, (B) the T/P's income drops low enough that some or all of that loss can be used ... up to $25,000 per year, or (C) the MN residence is sold. (The T/P may have already arrived at option "B.")
When the MN home is eventually sold, the depreciation taken during the two years it was rented out will be taxable ... up to the amount of the gain on the sale. (Code ยง121(d)(6))
Btw, your terminology "mixed use residence" is not correct. Mixed use refers to part residence and part business. It can also refer to a rental building that's part residential and part business, like a store with a business on the ground floor and a residence or apartments above.Roland Slugg
"I do what I can." -
To Rephrase
Since you stated that T/P's income is below $150,000 and I will assume below $125,000 as well, passive losses up to $25,000 in the year will be triggered.Comment
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A question.
Can you apply the special allowance against suspended passive losses even i years in which you are no longer engaged in rental activity? I can't find anything that addresses this question.Evan Appelman, EAComment
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