Roth conversion income offset by suspended PAL?

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  • #2346
    compass19
    Participant

    In 2019 I will sell my only rental property (for a slight capital loss after depreciation, but that’s not at issue here). It’s residential real estate held for 10 years.

    Primary question is: can I use the suspended PAL (Passive Activity Loss) to offset income from converting part of a vanilla traditional IRA to a Roth IRA?

    Secondary question: will I report the suspended PAL via schedule E, some other schedule, or direct on 1040? Doesn’t matter how it reaches sched E or whichever, as long as I can plop the PAL there for gaming out tax scenarios.

    My tax situation s/b pretty simple: small pension, small RMD, smallish cap gain and dividend income.
    – Ordinary income outside of Roth conversion is less than $30k
    – Capital gains income should be under $15k
    – AGI outside of Roth conversion s/b under $50k

    I looked hard via Google for a clear answer to this question and found nothing quite directly addressing it in a way that cleared up my doubts. I looked at IRS instructions–see 8582–but they were inconclusive, at least to this tax amateur. It seems like a common situation for retirees or lower income taxpayers disposing of rental properties.

    #2349
    ruth
    Participant

    Assuming you have no other passive activities, you don’t use Form 8582 because the (ordinary, not capital) loss on the sale isn’t a passive loss. See “Reporting an Entire Disposition on Form 4797 or Form 8949” on page 8 of the Form 8582 instructions. Include the suspended loss on line 22, Schedule E. See the instructions for line 22,Schedule E. The loss will reduce your other income (including income from a Roth conversion).

    #2353
    compass19
    Participant

    Thanks very much, ruth. That was wonderfully clear and to the point. (I don’t have other passive activities.) I’m relieved that the PAL will offset some Roth conversion income.

    Thanks also for the references. I’d tried finding the right parts but gave up too soon.

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