Sale of residence with suspended loss

[David]

TP purchased residence in March 2005 began renting it in June 2006, moved back in June 2010 and sold in October 2014. She has a $51K suspended loss.

When reporting the sale I should report the days rented after 12/31/08 as non qualified use for purposes of determining the partial gain exclusion, correct?

The TP should get to deduct all of the $51K suspended loss. However, the suspended loss is being allocated between the non qualified use and the primary residence use.

is this the correct calculation?

Depreciation isn't being allocated. All depreciation is correctly reducing basis. Shouldn't all of the suspended loss likewise be reported as an increase in basis?

Thanks.

[Pacun]

_{I would say yes to all yes questions, but it might be good idea if you tell us the cost of the house, improvements, depreciation allowed or allowable and the selling cost.}

[David]

Cost was $289K, no improvements, depreciation allowed and taken was $35,988, and the selling price less selling costs was $324K.

TP was divorced in 2014 and was awarded the house in the divorce. The HUD settlement statement has only her name listed.

Therefore, all information reported for the taxable gain due to the nonqualified use portion and the depreciation recapture are being reported to her.

The next question is, since she is awarded the house and the sale is being reported on her tax return, does she get to claim the $51K suspended loss or only half of it? I would think she gets to claim all of it since the sale is being reported on her tax return.

If she only gets half of the suspended loss then do I only report half of the sale and half the gain from nonqualified use and half of the depreciation recapture? I'm sure her ex is not reporting anything related to the sale.

Since there is a partial 121 exclusion, is she only allowed to deduct suspended loss to the extent of the taxable gain from nonqualified use and the depreciation recapture? Or can she take the full loss even if it generates an NOL?

Thanks. 

[kcjenkins]

Since she got the house in divorce proceeding as part of the settlement, the suspended loss goes with the house. She gets it all.  Current and suspended losses are fully deductible if there is a “qualifying disposition.”  Under IRC § 469(g), a “qualifying disposition” requires three criteria: 
Disposition of an entire interest (or substantially all), in a fully taxable event (where all gain/loss is realized and recognized), and to an unrelated party.

If these three tests are met, losses are fully deductible against non-passive income (unless the taxpayer has basis limitations).  Thus, in the year of disposition, losses allocable to the passive activity may offset portfolio and other investment income or may become part of a net operating loss.