Suspended passive losses deducted on Final 1040

[sami]

Dispositions by death-PUB 925

Dispositions Due to Death
Code Sec. 469(g)(2) provides that when the taxpayer dies, current and suspended passive activity losses are deductible as losses not from a passive activity to the extent such losses are greater than the excess (if any) of the basis of such property in the hands of the transferee over the adjusted basis of such property immediately before the death of the taxpayer.

In other words, death is a qualifying disposition but losses are allowed on the taxpayer's final return only to the extent that they are greater than the amount of the step-up in basis in the hands of the transferee. The amount of passive losses that do not exceed the step-up in basis are permanently disallowed as a deduction for any tax year (Code Sec. 469(g)(2)(B); FSA 200106018).

Can anyone help me on which form and line number can I deduct these passive losses that taxpayer is eligible on final 1040 as he meets the criteria

[TaxGuyBill]

Generally it is reported with the activity. So if it is a rental property on Schedule E, report it on Line 19 of Schedule E.

But your software may already do that if you are telling it to release the passive losses.

[Snaggletooth]

Let's see if I've picked up on what Sami has brought to the table.

Taxpayer owns rental property, with original basis of $100,000, and suspended losses up to the year prior to death is $45,000. FMV at time of death is $130,000, so the amount of "step up" is $30,000.

Is Sami saying that the release of suspended losses is limited to $30,000?

By the way, it is very common for deceased final returns to show very little income. If this income is reduced by large suspended losses, I see very little benefit to releasing the suspended losses unless an NOL can be created and rolled back. The default is to roll forward nowadays, but how can you roll forward on a deceased?

[Burke]

I would agree the "amount of the [total] step-up basis in the hands of the transferee" to be $130,000 in this example.. Since the amount of the adjusted basis just prior to the death of the owner was not given, not enough information is given here to calculate to what "extent of the losses are greater than the excess of the basis...in the hands of the transferee, over the adjusted basis...immediately before the death of the taxpayer." This example appears to assume adjusted basis at death was $100K (which was the original basis), not likely in the event of depreciation of rental property.