WHY IS PROSERIES RELEASING PASSIVE LOSSES ON ALL RENTALS IF I AM ONLY SELLING ONE PROPERTY?

Forum|Forum|3 months ago
March 29, 2026
5 replies
61 views

Hi! Help needed!

I have a client who has 3 Rental Properties. He is only selling 1 of them but ALL the passive activity losses are getting released on all 3 properties.

I am reading this can happen if all the rental properties are "Grouped" together as one activity but this is not the case.

Anyone know how I can fix this?

Thank you!!!

ProSeries Professional

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Terry53029

Intuit Community Champion

Be sure the box on the schedule E worksheet (box H) is unchecked on the two properties not sold

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kiranthakkarAuthor

Level 3

Just checked - they're not marked off. Only on the property which was sold

Y

YourTaxEdge

Level 4

Did you tell the IRS that the properties were NOT grouped? If not, what is the disadvantage to having the PALs released with the sale of the one property? JUST FYI, ProSeries is not a high level tax program capable of handling such intricacies automatically. You are most likely going to need to do a manual override of the loss amounts allowed and update the loss carryover input worksheets accordingly. THIS will NOT prevent efile.

BobKamman

Level 15

What is Part 4 of the Form 8582 showing, and then does Part 1 show net income? I haven't had this situation for quite some time, but I don't think that "grouping" is an issue when the gain on the sale of one property wipes out the losses on that property and there is still some gain left over. Can't that gain be applied against the carryover losses on other properties? At least that's what Google AI is telling me:

Order of Application: The sold property's carryover losses are applied against the gain from its sale. If a gain still exists, it is reduced by carryover losses from other rental properties.

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kiranthakkarAuthor

Level 3

Yes thats exactly what is happening as the gain is 200K and they have $130K worth of carryforward losses from all three properties so they're allowing all of them.

8582 is getting wiped out now that they're allowing all the losses.

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TaxGuyBill

Level 15

@kiranthakkar wrote:

I have a client who has 3 Rental Properties. He is only selling 1 of them but ALL the passive activity losses are getting released on all 3 properties.

I suspect they are not being "released", but they are being "used".

The one property is being "released" because it was sold in a fully taxable transaction. That means the passive losses can be used against non-passive income.

However, Passive Losses can be used against Passive Income. The sale of the property is creating INCOME from a Passive Activity. The passive losses from the other properties CAN be used against that Passive Income. That means the losses from the other two properties can be used up to the amount of the gain of the sale.

EDIT: Well, in regard to my last sentence, I don't remember offhand how the limits apply when in combination with the "release" of the one property, but at any rate, you have a bunch of income from the sale, and the other properties losses CAN be applied against that.

sjrcpa

Level 15

To simplify - passive losses are deductible to the extent of passive income. Doesn't matter how many properties have losses if there is more than that amount of passive income from any property.

The more I know the more I don’t know.