"K Cohen" <KCohen[at]bocaraton.com> wrote:

- quote -

If the activity is terminated, associated losses are deductible.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Short answer: If the losses really were passive losses and
were suspended losses under sec. 469, then they are now
deductible.

First you should make sure that they really were passive
losses - if they weren't (and I'm not suggesting one way or
the other here), then they should have been taken and your
failure to take them will cost you except for the last three
years, as to which you can file amended returns.

Next, assuming that the losses were indeed passive losses
and thus suspended under IRC sec. 469, they will become
deductible once you have disposed of your entire interest in
the passive activity.

If the trust is terminated, the passive activity should also
be terminated, which should mean that all of your remaining
losses should now be deductible under sec. 469(g)
(technically, any loss from the terminated activity,
including suspended losses, that exceed any net income from
all other passive activities is treated as a loss which is
not from a passive activity, and thus no longer subject to
the disallowance of sec. 469(a)).

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I was a creditor in a bankruptcy where a liquidating trust
was set up to distribute the assets to the creditors. I
received a K-1 form 1041 each year that it operated with
losses on the operation of the trust that I did not deduct
as I considered it passive losses. I received a final K-1
from the trust for 2004 and would like to know if I can now
deduct all the carryover losses since the trust is now
terminated, or do I continue to carryover the losses until I
(hopefully) have passive income from other sources in the
future. Please note that these are losses on the operation
of the trust and are not related to the loss suffered as a
result of the bankruptcy.

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