Disposal of Res RE Held in LLC

[cclinecpa]

Taxpayer (husband and wife 50/50 owners)have two residential rentals held in an LLC that files Form 1065. One of the properties was destroyed in a fire. Insurance proceeds generated $37000 in excess of depreciated basis of the building. The land is sold with no gain or loss. Accumulated passive losses from the LLC carried forward on the indiviidual tax return are approx. $70k.

If the property was held by the taxpayer individually this complete disposal would trigger recognition of accumlated passive losses. But does disposition of this property generate any recognition of passive losses accumulated on the LLC? Can I separate the two rental "activities" to recognize all past losses on the property disposed? If not, will the taxpayer have capital gains on $37k for casualty gain/depreciation recapture and the passive losses will remain suspended until the remaining property in the LLC is disposed of?

Thank you.

[OldJack]

>>If the property was held by the taxpayer individually... to recognize all past losses on the property disposed? <<

Remember the LLC is reported as a partnership (form 4797, 8825 and 1065) which flows all tax attributes thru to the individual. Therefore, the gain/loss is reported from the 1065K-1 to the 1040 Sch-E where suspended passive losses are waiting for recognition of completed disposal of real estate for deduction.

[cclinecpa]

Thanks so much for your response. I'm still a bit confused.

The property disposed is only one of two properties in the LLC. So can I recognize the suspended losses on that property on the individual tax return or will the losses remain suspended until all properties in the LLC are sold? The K-1 wouldn't give you any indication that the suspended passive losses on this one property could be taken.

In Quickvfinder and Master Tax Guide it refers to passive "activities". I'm wondering if each property is an "activity" and if there should be some attachment to the K-1 that shows pass through items by activity so the partners have the information they need to know what loss can be taken.

[OldJack]

>> So can I recognize the suspended losses on that property on the individual tax return <<

Yes, suspended losses are from each property/activity at the individual level and when one property is disposed of the suspended losses are deductible.

[cclinecpa]

Thank you.