What happens to $100K in suspended passive losses when selling rental property at a loss? Can I deduct against W2?

Yes, when you dispose of your entire interest in a rental property, the suspended passive losses become deductible. This is one of those silver linings when ending a not-so-great investment! The tax code specifically allows for the release of accumulated suspended passive losses when you fully dispose of your interest in the activity - in this case, selling your rental property. These losses can offset both passive and non-passive income, including your W2 earnings. So those $100K in losses you've been carrying can finally be put to use against your $135K salary. Keep in mind that the property sale itself might generate some taxable events that could partially offset these losses. For example, depreciation recapture could reduce some of your benefit. Also, document everything thoroughly - you'll want clear records showing how these losses accumulated over the years.

I was in almost this exact situation last year with my duplex that I finally sold after 8 years of headaches. I was panicking about my $85k in suspended losses and whether I'd lose them when I sold at a loss. After wasting hours with my previous accountant who gave me conflicting info, I tried https://taxr.ai and it was a game-changer. I uploaded my previous tax returns and the property sale docs, and their analysis showed exactly how I could maximize those suspended losses against my regular income. They explained that Section 469(g) of the tax code specifically allows the losses to be released when you fully dispose of the property. What impressed me was how they flagged some depreciation recapture issues that would have cost me thousands had I missed them.

I have to admit I was wrong about taxr.ai. After my skeptical comment, I decided to try it with my two rental properties that I've been struggling with. I was especially confused about how to handle my suspended losses from a property I sold last quarter. The analysis I got back was incredibly thorough - they showed me exactly where on my previous returns the passive losses were documented and how they would flow through to my current year return when I sell. They also identified a calculation error in how my previous accountant had been tracking the suspended losses. Turns out I had about $12,000 more in deductible losses than I thought! For someone with multiple properties and years of tax documentation, this service was actually worth every penny. Definitely not the tax gimmick I initially assumed it was.

When I sold my underwater rental property in 2023, I needed to talk to someone at the IRS about how to properly document my suspended losses on my tax return. I spent WEEKS trying to get through on the phone - either constant busy signals or being on hold for hours only to get disconnected. I finally tried https://claimyr.com after seeing it mentioned in another tax forum, and it was seriously the best decision. Their system held my place in the IRS phone queue and called me back when an actual agent was on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that yes, selling my property triggered the release of all my suspended passive losses, and they count against any type of income including W2. She even walked me through the specific forms I needed. Saved me so much stress and probably thousands in potential deductions I might have missed.

Wow, I feel like I need to update my earlier comment. After dismissing Claimyr, I spent another 2 full days trying to reach the IRS about my rental property loss situation. Out of desperation, I finally tried the service, and I can't believe it actually worked. Within 4 hours, I got a call back with an actual IRS tax specialist on the line. They confirmed everything about the passive loss deduction when selling a rental - that I can use the full $70k in suspended losses against any income type, including my W2 income. They also pointed out I needed to file Form 8582 for the year of sale, even though the passive loss limitation no longer applies. Would have definitely done that wrong without their help. So yeah, I was completely wrong in my skeptical comment. This service actually delivered exactly what it promised.

Just a quick tax tip from someone who went through this - don't forget about depreciation recapture! When I sold my rental, I was excited about using my suspended losses against my regular income, but I got hit with depreciation recapture at 25% on all the depreciation I'd claimed over the years. It significantly reduced the tax benefit I was expecting. Make sure you factor this into your calculations. Form 4797 is where all this gets reported, and it can get complicated when you're dealing with both a property sale loss and suspended passive losses.

Has anyone dealt with partial property interest sales? I own a rental with my brother and I'm selling him my half. Not sure if that releases my portion of the suspended losses or if it has to be a complete disposal to an unrelated party.

Make sure you're tracking your suspended passive losses correctly! My accountant messed this up for years. You need to keep track of them on Form 8582 worksheets each year. If you haven't been doing this, you might have trouble substantiating your $100k in losses if you get audited. The IRS doesnt automatically track these for you.

Great question! Yes, when you dispose of your entire interest in a rental property, all those suspended passive losses become fully deductible in the year of sale. This is covered under IRC Section 469(g) - you can use them to offset ANY type of income, including your W2 salary. With $100K in suspended losses and a $135K salary, you're looking at potentially significant tax savings. However, a few things to watch out for: 1. **Depreciation recapture** - You'll still owe tax at 25% on depreciation you've claimed over the years, even with a sale loss 2. **Documentation** - Make sure you have proper records of these suspended losses from your Form 8582 worksheets each year 3. **Sale loss calculation** - Your actual loss on the property sale will be separate from the suspended passive losses The silver lining is that after years of carrying these losses forward, you finally get to use them all at once. Given the complexity with depreciation recapture and the large amounts involved, I'd strongly recommend getting professional help to make sure you're maximizing the benefit and reporting everything correctly. Sorry to hear about the rental nightmare, but at least the tax situation should work in your favor!

This is such a common situation with rental properties! I went through something similar with my rental condo that turned into a money pit. The good news is that when you dispose of your entire interest in the rental property, all those suspended passive losses get released and can offset your regular income - including your W2 salary. Just be prepared for the paperwork complexity. With $100K in suspended losses, you'll definitely want to have all your documentation in order. I'd recommend gathering all your Schedule E forms from the past six years and any Form 8582 worksheets that tracked these suspended losses. The IRS will want to see the trail of how these losses accumulated. One thing that caught me off guard was that even though I sold at a loss, I still had some tax liability due to depreciation recapture. It didn't eliminate all the benefits from the suspended losses, but it was something I hadn't initially factored into my calculations. Still, being able to finally use those losses after years of carrying them forward felt like getting something back from an otherwise frustrating investment experience!