Four Tactics That Turn Suspended Passive Losses into Tax Deductions
By If you own rental real estate, you may have passive losses that have been suspended for years. Although you cannot currently deduct these losses, they are not lost forever. With proper planning, you may be able to unlock them and use them to reduce your taxes.
One common way to free suspended passive losses is to sell your entire interest in a rental activity. Once released, these losses can offset other income, potentially producing significant tax savings.
But not every sale works. Selling a rental property to a family member or to a corporation controlled by you or your family generally does not release suspended losses. Likewise, giving the property away can permanently reduce the tax benefit of those losses.
Another important planning consideration for 2026 is the excess business loss limitation. Even if you free a large amount of suspended losses through a sale, the law may limit how much you can deduct in the current year, with the remainder carried forward to future years.
Because the tax consequences depend on how your properties are grouped, who buys them, and the timing of the sale, advance planning is essential.
If you want to discuss your suspended losses, please call me directly at 408-778-9651