Suspended Passive Activity Losses
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I am preparing an individual 1040 tax return for a client who was divorced in 2007. The client & former spouse had owned a rental property since 2004 which showed a loss each year, but passive activity losses were suspended due to their AGI being greater than $150,000 each year. For 2007 I am filing a return for her only. The property was sold in 2007, therefore freeing up all accumulated losses. Per the divorce decree, I am to claim 1/2 of 2007 rental revenue & expenses for her. Won't this "skew" the total amount of accumulated losses to be reported? I am going under the assumption that I can claim only half of the suspended losses on her return. Would it be best to attach a spreadsheet, showing her half of losses that were suspended in each tax year?
Answer
I am not sure what you mean by "skew?" You only carry forward one-half of the suspended losses and show only one-half of the gain on sale, unless she owned 100% after the divorce.
