Greetings! Here is a scenario: I bought a third rental, placed it in service, and it is expected to have have significant repairs in 2021 that will likely lead to passive losses that will be carried forward into the future (due to income limitation). If we end up converting this property into a primary residence in 2022, what happens to these passive losses? Can they be carried forward to offset passive income from the other two rental properties or are passive losses somehow tied to each specific property?
I think you may be right in the first instance, they remain suspended until they are offset by future passive income generated from other sources. Let's see what others say.
And we meet again... :)
These losses stay valid and suspended until you sell the property. If in the meanwhile you have gains from another rental property, for example from selling one, you can apply these losses against gains from other properties.
Making your tax software behave this way could be tricky though.
Yes, BP forum seems to be the only way to ask Mr Plaks a question in today's environment...:)
Thanks, that’s very helpful.
“If in the meanwhile you have gains from another rental property, for example from selling one, you can apply these losses against gains from other properties. “
Just to make sure I understand…only against capital gains from another property but not against passive rental income from another rental property? I though I read a post here from Brandon Hall about a “grouping election” (with other rental properties) where suspended passive losses can be used to offset passive rental income… or something along those lines. I may be getting things confused.
The key is if the income is passive, not whether it's capital or ordinary.
A bit confused, yes. Grouping does not belong in this conversation.
Property A is a former rental with suspended passive losses.
Property B is a current rental with positive passive income, after all deductions.
Property C is a rental that has been sold with a capital gain.
Old losses from A can offset current income from B and/or current gains from C.
@Oleg Malkin I think I have heard Brandon Hall mention the 'grouping' in regards to "Real Estate Professional" status. IF I remember correctly it had to do with satisfying the 'requirements' to meet the REP status.
This is a different, but potentially related issue as passive losses and gains being discussed here.