Any situation that Scorp K-1 passive activity losses wouldn't be deducted final yr?

[WYChris]

I have a final K-1 from an S-corp. It has had PAL carry-overs for several years. The shareholder has a fully taxable transaction (not an installment sale) in disposing of this, even though it is a loss, too. I understood that PAL carryovers were released in the final year. The K1 is marked final. Is there any instance where the PAL carryovers would not be fully deductible in this final year since there was -0- basis (all used up in a prior year) at the first day of the year and the basis didn't increase throughout the tax year.

Also, if the facts remain the same, but they have a disposition OTHER THAN a fully taxable sale and not an installment sale, would that make any difference in how the PAL carryovers get deducted in that final year?

Thank you for any assistance you can provide to me.

References I have used:
Pub 925, p.12, Dispositions-Partner and S corporation shareholders
Form 8582, p.7 and 8, Dispositions, Disposition o fan Entire Interest
TheTaxBook, p. 7-10, Disposition of a passive activity
TheTaxBook, p. 7-13, Form 8582, Passive Activity Loss Limitations

[TaxGuyBill]

As far as I know, the "fully taxable transaction" should release the Passive Loss Carryovers for that activity.

If it is not a "fully taxable transaction" the Passive Losses might not be deductible. Can you explain the details of the non-fully taxable transaction?

[WYChris]

[QUOTE=TaxGuyBill;191602]As far as I know, the "fully taxable transaction" should release the Passive Loss Carryovers for that activity.

If it is not a "fully taxable transaction" the Passive Losses might not be deductible. Can you explain the details of the non-fully taxable transaction.

QUOTE=WYChris Thank you for validating my findings, TaxGuyBill.
I don't really have an example of a non-fully taxable transaction. In my original case below, the exiting shareholder had to pay the attorney fees regarding their request to sell their 40% ownership. The attorney decided there was no value for the 60% shareholder to pay on, per the 'right of first refusal' agreement; and that letter resulted in a possible third party losing interest in buying after the 'right of first refusal' by the 60% shareholder. Since the 40% shareholder had to pay the attorney fees to exit, and an exit letter was executed between the shareholders, and the 40% shareholder surrendered his shares upon the payment of the attorney fees, I am interpreting this to be a fully taxable transaction. It is a loss, but 'sale' and 'surrender' conditions were met with monetary value assigned to the agreement.

I'm not a lawyer, so I would be interested in any feedback on my interpretation on that.

[TaxGuyBill]

Yes, I agree, that would be a fully taxable transaction.

With personally owned real estate, the most common examples of a non-fully-taxable-transaction are (1) 1031 Exchanges, and (2) Gifts.

[WYChris]

[QUOTE=WYChris;191610]

As far as I know, the "fully taxable transaction" should release the Passive Loss Carryovers for that activity.

If it is not a "fully taxable transaction" the Passive Losses might not be deductible. Can you explain the details of the non-fully taxable transaction.

QUOTE=WYChris Thank you for validating my findings, TaxGuyBill.
I don't really have an example of a non-fully taxable transaction. In my original case below, the exiting shareholder had to pay the attorney fees regarding their request to sell their 40% ownership. The attorney decided there was no value for the 60% shareholder to pay on, per the 'right of first refusal' agreement; and that letter resulted in a possible third party losing interest in buying after the 'right of first refusal' by the 60% shareholder. Since the 40% shareholder had to pay the attorney fees to exit, and an exit letter was executed between the shareholders, and the 40% shareholder surrendered his shares upon the payment of the attorney fees, I am interpreting this to be a fully taxable transaction. It is a loss, but 'sale' and 'surrender' conditions were met with monetary value assigned to the agreement.

I'm not a lawyer, so I would be interested in any feedback on my interpretation on that.

Thank you so much for your help with this matter today. I really appreciate it!