Passive Activity Loss

[Hahn1040]

Clients had second home that they converted to rental because the market was too low and too slow to sell.

Their income is WAY past that of deducting the rental loss (retirements income is $160,000 plus wages of $200,000)

So if they sell after renting for 18+ months- can they deduct the loss on the sale of the house?

No personal use since they converted to rental

I tried this on three programs:

ATX- no loss deductible PAL adjustment offsets loss on 4797, so zero loss on 1040

Taxwise gives the loss from the 4797 but none of the rental losses accumulated

TRX gives both the loss from the 4797 and the rental losses (it eliminated the 8582)

obviously I can't just choose the program I like the answer...

thanks for your inout on this!

[MEHCPA]

The loss on the sale of the rental house can be deducted in the year it is fully disposed, as well as any passive losses not previously allowed. However, don't forget that the basis in the rental property is the LOWER of their cost or the FMV on the date of conversion.

[grandmabee]

The loss on the sale of the rental house can be deducted in the year it is fully disposed, as well as any passive losses not previously allowed. However, don't forget that the basis in the rental property is the LOWER of their cost or the FMV on the date of conversion.

that's the basis for depreciation. is that the basis for gain or loss too? I thought only depreciation

[Terry D EA]

I had the same thoughts as bcolleen. The original cost, plus improvements along with other items that can be added to the basis minus any depreciation would be the figure used to determine loss or gain????

[MEHCPA]

that's the basis for depreciation. is that the basis for gain or loss too? I thought only depreciation

It's also the basis if the property is sold at a loss. Check it out on Pub. 551, page 10.

http://www.irs.gov/pub/irs-pdf/p551.pdf