Carryover (loss on sale of rental unit)

[ILLMAS]

My brain is toast for the night, I have a client that sold their rental unit in 2016 at a loss of $40k (short sale, 1099-C possibly in the near future), in 2016 they were only able to deduct about $20k of the loss, in 2017 the carryover amount is limited to $18k.  My question, is the loss allowable if they didn’t have any passive income?  

[Roberts]

It's my understanding (and I could be 100% wrong) is that 1231 losses must be offset against 1231 gains only.

[Abby Normal]

16 hours ago, ILLMAS said:

My brain is toast for the night, I have a client that sold their rental unit in 2016 at a loss of $40k (short sale, 1099-C possibly in the near future), in 2016 they were only able to deduct about $20k of the loss, in 2017 the carryover amount is limited to $18k.  My question, is the loss allowable if they didn’t have any passive income?  

Yes, it becomes active on disposition. Was it carried over as an NOL?