How do you get forms to carry-over disallowed passive losses on a former rental (not sold)

Question

I converted a rental to my primary residence and I'm carrying (for several years) disallowed deprecation losses.  How can I get the application to add the correct forms?  I expect a Schedule E with no rental activity and an 8582 for the loss carryover, but the application won't accept Schedule E input of zero days rental activity in the prior year.

TaxMorgan · Answer

Hello cal90,

There is no way in our software to manually trigger Form 8582 in our software if your residence is not currently being used as a rental. I apologize for the limitation.

cal90 · Answer

I'm facing the same situation now. I have carryover passive losses from prior years from a rental that I have since converted to a primary residence. I thought Form 8582 had to be filed every year, even if the losses can't be released. Is there a way to manually trigger the creation of the form?

CoryF · Answer

Thank you for joining our community, Neofamulus.

This is a correct observation. The FreeTaxUSA software will not carry the correct forms for you to keep the carryover losses (depreciation) in this situation, since you converted the rental to a primary residence. You will need to keep those records handy for eventual reporting in the year of sale.

In that future tax year, you can add the Rental Income Schedule E to that year and input the carryover losses in the appropriate information page. The entry in Depreciable Assets for the home will allow the in-service date and sale date of the Rental Portion of the home. You will need to manually input the depreciation taken from your records. This Sale entry will release the carried over passive losses (form 8582) from the period that the rental loss was limited.