Impounded Losses

[Corduroy Frog]

High-income elderly couple rented out a residence when they were younger.  During the time they rented, they accumulated $215,000 in losses they were unable to take because of high income.

Never sold the property, but instead moved into the home that they formerly rented.  They have been carrying the impounded losses on 8582 ever since.

1.  Can they take advantage of the $215,000 without renting other property at a profit?  (I don't think so).

2.  If they die (they are in their 80s) and leave the property to their beneficiaries, can the impounded losses be taken when the estate sells the property, or does the $215,000 die with them?

Thank you in advance...

 

[Abby Normal]

https://www.thetaxadviser.com/issues/2017/jan/carryovers-death-spouse.html

Death is treated like a sale of the property and therefore triggers the allowance of the passive losses. However, the amount of carryover that can be deducted must be reduced by the excess of the basis of the property in the hands of the transferee (the heir) over the decedent's adjusted basis in the property just before death. In other words, the amount of loss equal to the step-up in basis at death is not allowed to the decedent or to anyone else because the heirs receive that tax benefit from the step-up in basis. If the decedent's PAL carryover is less than the step-up in basis, none of the carryover is allowed on the final return.

[Lee B]

5 minutes ago, Abby Normal said:

 

Death is treated like a sale of the property and therefore triggers the allowance of the passive losses.

 If you read the article, there is an interplay between the step up in basis and the passive loss allowed ,otherwise there would be a doubling of tax benefits.

[Corduroy Frog]

Thank you.  I'm glad the article was from the tax advisor and not the IRS.

[Abby Normal]

27 minutes ago, Lee B said:

 If you read the article, there is an interplay between the step up in basis and the passive loss allowed ,otherwise there would be a doubling of tax benefits.

Yeah, it's a complicated area of tax law that I'm sitting here wondering if I ever screwed one of these up.