8582 unallowed losses

[oceanlovin'ea]

Client had a partnership with 6 rental duplexes in it. He sold the duplexes last year with a sizable gain. He had a loss on the rentals themselves. My program is not allowing the losses because his MAGI is over $150,000 (just a little). But he sold the properties. I was thinking the loss would be allowed because he sold the property. So am I wrong? Does he have to carry the loss till next year?

Linda EA

[David1980]

Client had a partnership with 6 rental duplexes in it. He sold the duplexes last year with a sizable gain. He had a loss on the rentals themselves. My program is not allowing the losses because his MAGI is over $150,000 (just a little). But he sold the properties. I was thinking the loss would be allowed because he sold the property. So am I wrong? Does he have to carry the loss till next year?

Linda EA

There's probably a check box or something somewhere to indicate that the passive activity was disposed of. For example "Final" on K-1?

The disposition of an entire interest in a passive activity or former passive activity is no longer limited by the PAL rules - https://www.irs.gov/instructions/i8582/ch01.html#d0e892

[oceanlovin'ea]

Thanks David

I had checked final K-1. But I changed from active participation to material participation and it allowed the loss. He did materially participate......spent all his time there...drove him crazy.

Thanks

Linda, EA

[Burke]

I don't thing that mattered at all. Since it was disposed of, it should have been allowed. My K-1 input worksheet has a box to check for fully disposed property. I am not sure just checking "Final K-1" would do it.

[Roland Slugg]

The "Final K-1" should have no bearing on the tax outcome. If your client disposed of those six rentals, then all current year losses for those six properties are allowed in full, and all suspended losses for those six properties are also allowed in full. If there is still net income after that, then that excess income releases other suspended PALs, if any, which can then be deducted on a proportionate basis.