Disposition Rules For Passive Activities
The IRS has specific disposition rules for passive activities. If you own rental properties, you should be aware of these regulations before filing your taxes. Consult with a tax professional if you need assistance with this complex tax matter.
Any gain or loss from the disposition of a passive activity is generally also passive. However, special rules apply to dispositions.
Total Dispositions
Presumes the disposition is a FULLY TAXABLE EVENT. Gains are taxed, and any previously suspended losses are allowed. A special rule accomplishes this.
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Overall Gain., If all aspects of the activity are aggregated (current year income/loss, previous suspended losses, gain/loss from disposition) and the aggregate is an overall gain, the overall gain is passive.
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Overall loss. ,If there is an overall loss, the loss shall be allowed., §469 accomplishes this by RECHARACTERIZING the activity as NONPASSIVE., This allows Form 8582 to be bypassed.
Partial Dispositions
Are more involved (See the Section “Partial Disposition Election”).
Partial Recognitions
If only part of the total realized gain is recognized (as with INSTALLMENT SALES or some TAX DEFERRED EXCHANGES), the gain/loss must be pro-rated. If, for instance, 20% of the total gain is currently recognized, then at least 20% of the overall losses will be allowed.