What happens to deferred vacation losses on home no longer a vacation home?

I thought the "personal use" rule caused (most) "losses" to be lost, rather than suspended. Am I missing something?

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

Yes. Disallowed operating expenses and disallowed casualty and theft losses and depreciation are carried over. You can see this in the worksheet that is in IRS Pub 527 on Rental Property.

The disallowed expenses from prior years are still business expenses, not personal expenses. As such, they get added to current year expenses and may create a loss in the current year.

My understanding is that such carryover losses remain forever subject to the 280A limitations. So in accordance with that, they generally CANNOT create a loss in the current year. And in the eventual year of sale, any remaining 280A carryovers can probably be applied to the extent of gain on sale, but again cannot create a loss.

Note that the handling of 280A carryovers is significantly different than the handling of passive losses. And life can get difficult if you have to apply both sels of rules to a particular property.

In the specific case the accumulated disallowed losses are on the order of $15K (the property has been held for ~30 years and while the average loss has been low, it's added up over all those years). That whole $15K can come onto the current year return and create a big current loss? (For my relative this would have the added "fun" of likely creating a NOL since relative's other income is pretty low.)

In this case the relative is essentially abandoning the personal use due to age so lack of personal use will NOT be a one-time thing. But your answer would appear to indicate that a taxpayer in this situation could simply forego any personal use in a single year and be able to free up and take all those expenses in that one year, and then in the following years go back to the normal personal use pattern. Seems too good to be true!

Looks like Mike is right. Oh well. From IRC 280A(c)(5):

Any amount not allowable as a deduction under this chapter by reason of the preceding sentence shall be taken into account as a deduction (allocable to such use) under this chapter for the succeeding taxable year. Any amount taken into account for any taxable year under the preceding sentence shall be subject to the limitation of the 1st sentence of this paragraph whether or not the dwelling unit is used as a residence during such taxable year.