passive loss carryovers

The suspended passive activity losses will continue to carry over, subject to the "prior passive activity" rules. I think that's what they're called. Someone will correct me.

You have a former passive activity and carry the losses forward until either you 1. Have passive income or 2. Dispose of the property in a transaction that recognizes a taxable gain.

Correct. Conversion of a passive activity's assets to personal use is NOT a disposition.

1. Can you balance passive income of one category with passive income from another category? Examples: (i) balance your loss in the rental R1 with royalties R2, (ii) balance your loss in rental R1 with a gain in rental R2, balance your loss in rental R1 with S Corp gains S2. R1 is the the original rental that the OP mentioned, R2/S2 is a royalty or rental that happens years afterwards.
2. What if you sell at a taxable loss? You can still take the carried over losses, right? The losses would balance the recaptured depreciation, and the remaining loss would reduce your AGI, like your W2 income from a job. And if the AGI dropped below zero, would there be an NOL?

So that means that if you exclude all gain under Sec. 121 for selling your primary residence, the passive loss carryover disappears.

On the other hand, the new rules that require you to pro-rate the Sec.

-Mark Bole

#2 is technically wrong but often results in the correct outcome.

#2 should be: Disposes of the entire interest in the ACTIVITY. The mere selling of an asset used in a passive activity does not trigger recognition of the suspended loss unless it was the LAST asset of the activity.

Disposition of the activity need not be a sale. Death counts too.

Actually, the correct term is no "upon sale", rather it is upon a "complete disposition."

Hence, if you move into it you have not completely disposed of it, so the losses stay suspended until you completely dispose of it.

Gene E. Utterback, EA, RFC, ABA

That is my understanding.

Yes. You can not exclude the gain attributable to allowed or allowable depreciation.

Right, there might have been a prior election to treat all activities as one. Then all the assets must be sold to dispose of the activity.

Who gets the previously disallowed losses, the decedent or the heir(s)?

-Mark Bole

Tax on unrecaptured Sec. 1250 gain is part of a taxable transaction, right?

-Mark Bole

The rules for dispositions of passive activities are in the Code. One of the surprises is that not only must there be a complete disposition of the activity (for the carried over losses to be allowed) but the disposition has to be "completely taxable". Some folks are saying that if the Section 121 exclusion applies to exclude any part of the gain, the carried over passive losses are *not* allowed even though the disposition is "a complete disposition" because it's not a "completely taxable disposition."

And the rule for "disposition by death" is even more complicated. It has to do with how much step-up the heirs *don't* get in the property.... Read all about it in IRC Section 469(g).