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Old 03-07-2014, 06:59 AM
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Claiming Prior Losses

I have a rental property which was acquired through a 1031 exchange many years ago and which was rented out up until 7-1-13 at which time it was CONVERTED to a vacation home (2nd home) on the same date. It will be used exclusively by my wife and I as a vacation home and not rented out. The property has over 50k in prior year unallowed losses. 2013 Schedule E for the period 1-1-13 through 6-30-13 has a net loss of approx 18k. My questions:
*can I use the prior year unallowed losses of 7k to add to the 2013 18k to bring the total to the max 25k deduction against personal income (there are no limitations or phase-outs for us in 2013)
*what happens to the balance of the unallowed losses? can they be taken in the next few years while the property is in private use status?
*are there any other unforeseen tax consequences to the above described scenario
Thanks you very much for any help or advice.
Hank



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Old 03-07-2014, 10:31 PM
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Join Date: Oct 2010
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Originally Posted by Hank View Post
#1;*can I use the prior year unallowed losses of 7k to add to the 2013 18k to bring the total to the max 25k deduction against personal income (there are no limitations or phase-outs for us in 2013)




#2;*what happens to the balance of the unallowed losses? can they be taken in the next few years while the property is in private use status?



#3;*are there any other unforeseen tax consequences to the above described scenario
Thanks you very much for any help or advice.
Hank
#1;aslongas you actively participated in your rental activity, you can use up to $25k per year against ordinary income. Even so, the allowable loss is limited by your AGI. Then, unallowed losses can be carried forward but you must keep track of which ones were covered by the active participation rules and which ones weren't. Losses not covered by the active participation rules can only be used against passive activities in future years. Losses covered by the active participation rules can be used against non-passive income in future years. Any losses that you can't use in the future can be used to reduce the gain or generate a capital loss when you dispose of the property in a fully taxable sale to a non-related party.


#2;as mentioned above;



#3;as you rented it out asyou can see, you must recapture the unrecaptured depre previously taken on the rental pty on your return as sec 1250 gain taxed at 25% when you dispose of the pty.



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