A client has a vacation home that they were renting out. The converted it to 100% personal as of 1.1.10. There is some loss still not taken. Does anyone have a cite for how the loss is to be handled, take it all now on Schedule E or when/if it is sold. I think they will have to wait but can not find a cite.

asked 10 Feb '11, 01:38

Toni%20McIntyre%20CPA's gravatar image

Toni McIntyr...
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edited 10 Feb '11, 05:05

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Bill-EA
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Suspended losses from rental activities are deductible when the property is DISPOSED OF. Converting it from a rental to personal use is not a disposition. Check IRS Publication #527 for details.

(10 Feb '11, 13:12) EAgent

Disallowed passive activity losses are deductible against any income when substantially all of an activity is disposed of in fully taxable transaction.

Disposition in nontaxable transactions or in related party transactions does not trigger suspended losses. A taxpayer who disposes of his entire interest in a taxable transaction may deduct the disallowed passive activity losses, including losses recognized on the disposition of the interest.

Gifts, transfers to related parties, and tax-free exchanges are not treated as taxable transactions. A taxpayer's disposition of his interest to a related party does not trigger the use of the suspended passive activity losses (Code Sec. 469(g)(1)(B)).

The disallowed losses remain as a carryover for the taxpayer and can be used only to reduce passive activity income (Conference Committee Report to P.L. 99-514 (1986), H.R. Conf. Rep. No. 99-841).

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answered 10 Feb '11, 05:04

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Asked: 10 Feb '11, 01:38

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Last updated: 10 Feb '11, 05:05