Capital gain from sale of rental property - offset carry forward passive losses from K1?

[nolanm]

Hello, any advice much appreciated,

My client has sold a rental property (passive) for a capital gain of $140k. The property has passive losses carried forward from prior years of $30k. He also has a LP interest in a hotel partnership. This generated $60k of carry forward losses last year in a K1 (its first year - large depreciation charges I believe).

From 8582 pulls the $30K + the $60k of passive losses carried forward as a deduction of $90k on the 1040, substantially reducing the cap gain of $140k.

Is this correct, or can the $60k only be used as an offset when the hotel LLC is sold/exited. Both are real estate - but I am getting mixed answers in my research.

Thanks for the help

Nolan

[TaxGuyBill]

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@nolanm wrote:

My client has sold a rental property (passive) for a capital gain of $140k.

From 8582 pulls the $30K + the $60k of passive losses carried forward as a deduction of $90k on the 1040, substantially reducing the cap gain of $140k.

Is this correct

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Yes, it is correct. 

The $30k is released because it was sold in a fully taxable transaction.

The $60k passive loss carryover can only be used against passive income.  The rental sold for gain of $140k, so there is now $140k of passive income.  

[nolanm]

ok thanks sir

Some posts say that they asset that generated the $60k by k1 also needs to be sold to offset. Looks like Proseries has this one correct.

Appreciated.

[BobKamman]

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@nolanm wrote:

ok thanks sir

Some posts say that they asset that generated the $60k by k1 also needs to be sold to offset. Looks like Proseries has this one correct.

Appreciated.

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I think that rule only applies to publicly-traded partnerships (PTP).