How to handle built up vacation home carryover expenses when no more personal use?

I thought "vacation home" losses were just disallowed -- no carryover.

-- Arthur Rubin, AFSP, CRTP, Brea, CA

As far as I can see, the vacation home issue is deciding what portion of expenses are to be treated as rental expenses. Once that is done, you have rental income, rental expenses, and rental losses. When the vacation rental become a non-vacation rental, just add the new losses to the old losses and carry it all forward - they are all rental losses.

Well, some tax software programs treat it that way...they just limit the loss to zero and "forget" about any loss carryover. ;-)

But, in fact, the suspended losses under 280A CAN be carried forward, but they are forever subject to the 280A income limitations. So you can't create or increase a loss in a future year by applying the carryovers.

And I wouldn't combine "vacation home" loss carryovers with "passive" loss carryovers incurred in non-vacation home years. The two categories of losses must be separately tracked and applied. And the exact interaction between the two has never been defined as far as I know. :-(

Three completely different answers. We could be the IRS help desk Dream Team!

And I am not certain what is the correct answer.

I will add mine. There are two rules in play. One is the passive activity loss limitation that contains an exception for up to $25,000 of losses and the passive activity loss limitation for mixed use property (expenses can not exceed income). I have always treated the passive activity loss limitation as the primary reason that the loss can not be used to offset ordinary income. The mixed use rule, merely disallows the exception for the $25,000 write-off. The question is whether suspended losses that were limited by both rules can be used to generate a $25,000 exception because the property is no longer mixed-use. I can't find anything in the law that changes these suspended losses to something other than a passive activity loss. I see no reason why the loss can not be combined with any additional losses on the the rental property and fall subject to the $25,000 exception. I do not believe there is such a thing as a mixed-use disallowed passive activity loss that can only be used against mixed-use property.

See IRC 469(j)(10) which, in so many words, appears to define 280A items as non-passive.

See also the final sentence of IRC 280A(c)(5) which, while allowing carryovers of suspended 280A items to future non-280A years, nevertheless states that the use of same is still subject to the 280A loss limitation regime (which differs from the passive rules).

So my conclusion is that the 280A losses and passive losses must be tracked and applied separately. In relatively simple situations this probably won't present a problem. However, from studying this years ago, I recall seeing some more complex situations where the two sets of rules became seemingly incompatible with each other.

I'll agree with this. One has to use Worksheet III rather than Worksheet I on the Form 8582 even after the property is no longer mixed use.

In this case as the taxpayer only has about $25,000 of AGI each year they are thankfully well below the threshold that blocks taking passive losses against other income, so there is no passive loss carryover as I understand it.