Discussion:Passive loss carryovers when prop converted to personal residence

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Discussion Forum Index --> Tax Questions --> Passive loss carryovers when prop converted to personal residence


Lsuper (talk|edits) said:

8 February 2006
I have a client who has a former residential rental property that he has now converted to his personal residence. He has about $40,000 of PAL carryover. This year his income is low enough that he could get the special $25K loss on form 8582. He doesn't have any other passive activities. He does qualify for the $25K but is there an exception to this when the activity becomes a personal residence?

I've searched the code and can't find this particular situation. It does discuss treatment of "former passive activities" but the example there assumes the activity is just no longer passive and still generates income and expenses. Any help would be greatly appreciated!

Riley2 (talk|edits) said:

8 February 2006
The $25,000 special allowance is not available with respect to an activity unless there was active participation in the activity in the year of the loss and the year of the carryover.

See Sec. 469(i)(1).

Lsuper (talk|edits) said:

9 February 2006
I read that too but what stumped me is that when it discusses the active participation requirement it states in () "and if any portion of the loss or credit arose in another taxable year, (they must have been active)in such other taxable year"

Since he was active when the loss arose, I was thinking he might qualify.

I appreciate your help.

Hanni (talk|edits) said:

17 February 2006
Question on the same note: Can the taxpayer use his PALs when he sells the primary residence?

Riley2 (talk|edits) said:

17 February 2006
It depends on your interpretation of the term "if all gain from such sale is recognized". Some practitioners take the position that a Sec. 121 gain is fully recognized, but partially or fully excluded.

Taxalmancer (talk|edits) said:

29 January 2008
So in this example the $40,000 PAL will not be allowed in future years toward the $25,000 special allowance once the rental property is converted to personal.

If the taxpayer purchased another rental property that generated passive activity gains could the $40,000 be used to offset those gains?

CATerri (talk|edits) said:

24 March 2009
A question along the same lines.....if taxpayer has prior year PAL carryovers from when he was not an active particpant in the rental activity can those losses be used against his new rental property which generates passive income?

Riley2 (talk|edits) said:

25 March 2009
Yes.

CATerri (talk|edits) said:

25 March 2009
Thanks Riley. You are the best.

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