Rental to Personal with passive losses

[tliberto]

Taxpayer converted a rental property to his primary residence on June 29, 2016. He has passive losses of $191,000 carried forward for this rental property. Can he deduct these losses in 2016 since it is no longer a rental property?

[Lion EA]

Not until he sells the property in a fully-taxable transaction.  I think.  I didn't get much sleep.

If the losses were deferred due to his income being too high, can they be released if his income drops while the house is NOT a rental?

(I'm heavy into partnerships and S-corporations, so can't think straight about anything else.  Don't like the new deadlines!)

[Terry D EA]

Lion is correct, hope the statement below helps.

When the rental property with passive loss carryovers is converted to a principal residence,  the carryover losses can only be deducted to the extent of other passive income, or in the year the property is sold.

The $25K loss exception will no longer apply to the carryover losses in future years if the property is taken out of rental service.(Sec 469(i)(1). There can be no current year active participation in a rental activity in a year when the property is not used as a rental.

[Lion EA]

Thanx for the clarification, Terry.

[tliberto]

Thanks to everyone who responded. My ATX software was somehow corrupted and deducting all of the carry over passive losses. I knew this was wrong,but the software would not let me correct the problem. I rolled over the return again to start all over. This time my ATX software handled it properly and did not deduct the carry over passive losses. Spent too much time on this return.