I have a question about a taxpayer that changes residency to another state and then subsequently frees up suspended passive activity losses.
Taxpayer resides in CA and owns rental property in NV. The NV rental incurs losses for several years that become suspended PALs on both their Fed & CA tax return. In 2018, the taxpayer moves to NV and moves into that rental property. The suspended PALs remain.
In late 2018, the taxpayer sells the property and reports a gain on the sale but also frees up those suspended former passive losses.
Because the taxpayer is a resident of NV at the time of the sale, the gain is excluded from their CA part year tax return.
What about those freed up PALs? Are those reported on their CA part year tax return since they were suspended for CA purposes on their prior CA tax returns?