Use of Suspended Passive Activity Loss

[IllinoisTaxMan]

Hi,

I wonder if the taxpayer can choose not to use prior suspended passive activity loss?

The taxpayer sold one of the residential rental property resulting in the capital gain but bringing up the use of prior suspended loss from other property on Form 8582.

Since he had huge capital loss carryover to offset capital gain, the use of prior suspended loss is not beneficial to the taxpayer.

So, the taxpayer doesn't want to use up the suspended loss this year. Can he do that?

<_<

[IllinoisTaxMan]

My question is if the taxpayer gives up the use of loss carryover this year, he loses the right to use it in the future years.

Does anybody have this experience?

Any comment is appreciated.

[imjulier]

There are ordering rules to how losses are utilized and dispositon of a passive activity does kick in all the previous passive losses. I'd guess that PALs have to be used first and that there is not an option to not take the PAL. It only makes sense that Capital loss carryforward would kick in after the PAL but I don't know enough to give you a cite or even if I'm 100% right. You might try a search in some of your reference materials for "loss ordering rules" as this is how I've heard this stated.

Julie

[IllinoisTaxMan]

There are ordering rules to how losses are utilized and dispositon of a passive activity does kick in all the previous passive losses. I'd guess that PALs have to be used first and that there is not an option to not take the PAL. It only makes sense that Capital loss carryforward would kick in after the PAL but I don't know enough to give you a cite or even if I'm 100% right. You might try a search in some of your reference materials for "loss ordering rules" as this is how I've heard this stated.

Julie

Thank you for your response. It gives me some info.