Passive losses; LLC-owned rental property


D

David Haffey

Individual owns 50% of LLC (1065). LLC owns several rental
properties. Individual has unused passive activity losses
from prior years as a result of losses reported on his
K-1's. In 2002, LLC sells one rental property at a gain.

It is my understanding that this gain is passive activity
income. Question; can the individual deduct unused LLC
losses to the extent of this gain even though the losses
relate to several rental properties only one of which has
been sold, or can or must we determine the portion of
unused passive losses that relates to the specific property
sold and deduct that portion in full?
 
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D

Dave Woods, EA

David Haffey said:
Individual owns 50% of LLC (1065). LLC owns several rental
properties. Individual has unused passive activity losses
from prior years as a result of losses reported on his
K-1's. In 2002, LLC sells one rental property at a gain.

It is my understanding that this gain is passive activity
income. Question; can the individual deduct unused LLC
losses to the extent of this gain even though the losses
relate to several rental properties only one of which has
been sold, or can or must we determine the portion of
unused passive losses that relates to the specific property
sold and deduct that portion in full?
Well if it were being done properly, you were tracking
losses derived from each property. In that instance, yes
you could deduct losses relative to that property when it
was sold.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
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D

D. Stussy

Well if it were being done properly, you were tracking
losses derived from each property. In that instance, yes
you could deduct losses relative to that property when it
was sold.
That doesn't quite answer what he asked.

You may deduct losses allocated to the OTHER activities to
the extent there exists a net gain on the property the
partnership disposed of if after netting its gain on sale
against its suspended loss, a gain is still present.

You also deduct the suspended loss from the property that
was sold even if the loss is greater than the gain on sale
(in which case, there's nothing to allocate to the other
activities) because you have disposed of the activity.
 

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