My question is on suspended passive activity losses from rental real estate.

The property generated a loss in 2016. However, because adjusted gross income was higher than 100K, the phase out rules kicked in and only a portion of the loss was deductible and the non-deductible portion carried forward to future years.

Assume the non deductible portion in 2016 was $3,000.

In 2017, the property once again generates a loss ($2,000 for example). Would the taxpayer be able to deduct $5,000 in 2017 because he is still entitled to deduct $25,000 each tax year (assuming non material participation and no other passive income)? If so, would -$2,000 be shown on Line 21 of Schedule E and -$5,000 shown on Line 22?

Thanks.

My question is on suspended passive activity losses from rental real estate.The property generated a loss in 2016. However, because adjusted gross income was higher than 100K, the phase out rules kicked in and only a portion of the loss was deductible and the non-deductible portion carried forward to future years.========> The tax rules provide that you may deduct your suspended passive PAL losses
from the profit you earn when you dispose of your rental property. To take this deduction, you need to sell substantially all of your rental activity.


Assume the non deductible portion in 2016 was $3,000.

In 2017, the property once again generates a loss ($2,000 for example). Would the taxpayer be able to deduct $5,000 in 2017 because he is still entitled to deduct $25,000 each tax year (assuming non material participation and no other passive income)? =========>>Generally, with a passive activity, losses each year are allowed to the extent of income unless the taxpayer qualifies under 469(i) as actively participating in the activity. 469(f) permits a prior year passive loss to offset current year income from the same activity, even though that income might be non-passive in the current year. While net income or gain on sale is non-passive, it may be used to trigger prior year passive losses from the same rental or business activity. Stated differently, non-passive income cannot offset any passive loss except a prior passive loss from the same activity. What the law does makes inherent common sense. It permits a netting of prior year passive losses against income from the same business or rental.

If so, would -$2,000 be shown on Line 21 of Schedule E and -$5,000 shown on Line 22?====>$2K is reported on Sch E of 1040 line 21.for example say A is single and has $40k in wages, $2kof passive income from a rental pty, and $3.5K of passive loss from a rental real estate activity in which A actively participated. $2k of A?s $3.5K loss offsets A?s passive income. The remaining $1.5K loss can be deducted from A?s $40K wages however if there is non passive income A cannot claim $1.5K this year.

Also ypou need to report the $3K on form 8582 line 1c, 1d,4, 5, line 15, 16, then report it on form Sch E of 1040 on line 22