rbynaker
Level 14
09-23-2020
05:12 PM
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Yes, the losses are freed up on sale of the property (and will offset other non-passive income and/or possibly create an NOL if the stars are so aligned.)
For a while it was debatable whether a sale with Section 121 exclusion constituted a "fully taxable transaction" but, as you found, the IRS determined that "taxable then excluded" counts.
Rick