Can I Use Suspended Passive Losses Against Sale of Business/Rental Property?

[bevantaxservices]

Selling a rental property.  A qualifying sale.  Have suspended passive losses.  How can I use these against capital gain?  Against depreciation recapture?  Where to enter?  BTW this property also qualifies for the $250K home exclusion.

[Terry53029]

When you fill out the asset worksheet showing a disposition, the program should do the work for you (at least with Pro) your suspended losses should be taken. As far as the section 121 exclusion, you fill out the sale of home worksheet. I believe you are talking about the sale of a duplex or similar rental property 

[Just-Lisa-Now-]

Checking Box H on the Sch E worksheet should free up suspended losses.

[bevantaxservices]

Still can't get suspended losses to propagate against gain on sale of biz/rental property.  Box H is checked w/ Active & Material participation.  I can see the passive loss calculation on 8582 pg1, Pt I, ln 1D and 4, both $90K.  On Pt II Ln 5 says "Enter the loss on ln 1d or 4....."  Nothing there.  Any suggestions?

[bevantaxservices]

I screwed up.  The amounts on 8582 Pt I, ln 1d and ln 4 are not losses, they are a positive number.  The math on 8582 looks like this.

1a. $157,037(gain after $250K home exclusion)

1b. -$10,031, Activities with net loss

1c. -$51,793, Prior years unallowed losses

1d.  $95,213

So down on 8582 Sec 4, ln 4, it says “If this line is 0, or more, stop here and include this form with your return;  all losses are allowed, including any prior year unallowed losses entered on line 1c, 2b, or 3c.  Report losses on the forms and schedules normally used.”  What forms and schedules is line 1c reported on.  I would have expected to see the losses -$10,031 & $51,793 to be combined and offset ordinary income.  But I see $157,037 as a capital gain on Schedule D.  Can't suspended losses be be used to offset ordinary income?  Am I missing something here?

[Accountant-Man · Accepted solution]

What should happen is the gain goes on the 4797 and Sch D and the losses remain on Sch E.

[bevantaxservices]

Oh, I think I see how this is handled.  The suspended passive losses are released and propagate onto the form from whence they came, Schedule E.  They show up on line 22, "Deductable rental real estate loss".  From there they are netted against the Schedule E gain/loss and propagate to the 1040, line 7a.  So this effectively allows them to offset ordinary income.  Just-Lisa-Now gave me an important clue and that was make sure Box H, "Complete taxable disposition", on Schedule E is checked.  So why didn't somebody just say that in the beginning?  Thanks for your help.

[Just-Lisa-Now-]

I thought I did say that in the beginning.

[Terry53029]

Evidently you need to SPEAK LOUDER. 😀

[robinweaver]

Where is box H?

[Accountant-Man]

Schedule E worksheet, under "Check All That Apply."

[robinweaver]

Is that on the property information tab?

[TaxHappy]

Thank you. Pointing out that little box saved my hide!