Like Kind Exchange - Unallowed Passive Loss

[peggysioux]

If client does a like kind exchange on a rental property that has unallowed passive losses from previous years; what happens to those unallowed losses. Does it effect basis in property or does the unallowed losses carry over to new property or are losses lost?

[peggysioux]

Unallowed Passive Losses

Can anyone shed some light on the handling of past unallowed passive lossses when a like kind exchange is done on rental property. Do the losses of the original rental continue to future years?

[WhiteOleander]

It appears that the losses cannot be taken at this time.

I "googled" the question. I found this at taxalmanac.

http://www.taxalmanac.org/index.php/Passive_Dispositions

I hope the link works.

[peggysioux]

Carry-over passive loss

Client had $40,000 prior unallowed losses from rental and did a Like Kind Exchange in 2005. Client continued depreciation on basis of original rental and than had a new depreciation of the additional basis for exchange. The Lacerte program is picking up a portion of the unallowed losses from original rental and applying to 2006. Would that be the correct handling or would the previous unallowed loss be held until the sale of the exchanged property and than applied to basis.

While Oleander, I looked at the article you attached (much appreciated), and understand the loss would not be deductible in the year of the exchange, but being a taxpayer can deduct up to $25,000 per year in rental losses, the Lacerte program is picking up a portion of the $40,000 to apply to 2006. Am I missing something in my program or is it deductible?

[Gene V]

Here is another good article on passive loss on 1031 exchang

http://www.1031.us/Docs/Articles/PassiveLosses.pdf

[WhiteOleander]

Well, I'm not sure. I don't know why the prior year losses were unallowed.

Since in an exchange, you are supposed to be in the same postion as you were before the exchange, I think I would work through the problem as if no exchange had happened. Then, if picking up the prior year losses would be allowed w/o the exchange, I would say they would be allowed now. (hope that makes sense).

[peggysioux]

Gene & White Oleander,

Thanks to both for clearing up. I thought suspended losses should carry over to new property, but needed confirmation. Much appreciated. The article on 1031 exchanges and suspended passive losses was very helpful!!!!!