Rental property sale capital loss carry forward

[GClyde]

I sold a rental property in 2017 with a capital loss.  I'm told the excess loss cannot be carried forward.  Doesn't seem right.  True?

[Critter]

Are you sure you have a loss after the depreciation is recaptured ?   Review the Sch E, form 4797 & Sch D to see how the sale is being reported.  

[Carl]

 Very (VERY!) rough, your gain or loss on the sale of rental property is determined as follows.

What you paid for the property, plus what you paid for any property improvements during the time you owned it, gives you your cost basis in the property.

Now subtract the total of all depreciation taken while you owned it, from your cost basis. This gives you your intermediate cost basis in the property.

Now add all of your carry forward losses to the intermediate cost basis, and that gives you your adjusted cost basis.

Note that this is an extremely rough method to see if you have a gain or a loss, and it's not perfect by any means.

Now if you sold the property for less than your adjusted cost basis, you have a loss.

If you sold the property for more than your adjusted cost basis, you have a gain.

So using this rough method, do you have a loss or a gain?

[GClyde]

Yes, there is loss after recapture.  It shows up on line 14 of 1040, on Schedule E's "Active Summary Smart Worksheet", line 18b of Form 4797, but not on Schedule D.  The TT CPA said unlike stock sales, the long term loss on rental property does not carry over.

[GClyde]

No question there's a loss.  It shows up on 1040, Schedule E, and Form 4797.  It just dies at 4797.  Not shown on Schedule D or in the capital loss carry forward form.  The TT CPA said rental property capital loss at sale, unlike stocks, does not carry forward......

[Anonymous_ · Accepted solution]

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@GClyde wrote:

The TT CPA said rental property capital loss at sale, unlike stocks, does not carry forward......

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What you have is known as a "Section 1231 loss", not a capital loss. That is generally a good thing because the loss is treated as an ordinary loss and can offset all other income, typically without limitation.

The rules are somewhat complex but, essentially, although there is no carryover for the loss, it could possibly create an NOL. You figure an NOL using Form 1045 which, unfortunately, TurboTax does not support.

See https://www.irs.gov/instructions/i1045

[GClyde]

Thank you.