When one sells a rental property that followed a straight line 27.5 year depreciation schedule, the net gain should be reported on Form 4797 - it will likely be categorized as a 1250 property. The net gain should be transferred to Schedule D. If the rental property is in service for a few years prior to sale, the net sale gain should be a long term capital gain. The tax should be calculated based on capital gain tax rate. The depreciation recapture should be calculated at the depreciation recapture tax rate. these should all be included in the total amount shown on Line 16 on Form 1040. The suspended passive losses on this rental properties over the years should be reported on Schedule 1 and the Schedule 1 result should then be transferred to Line 8 on Form 1040.
Is this summary correct?
However, several experts provided conflicting answers regarding how the gain from the sale of a rental property can or cannot be offset by suspended K-1 passive losses from other partnerships (unrelated to this rental property). If the net gain from the rental property sale is included as a long term capital gain on Schedule D, the net gain is allowed to be offset by stock losses. If so, how can the net gain from the rental property sale is also offset by the suspended K-1 passive losses from other partnerships (unrelated to this rental property) on Schedule E? It does not make any sense to offset the same gain twice - one on Schedule D and another one on Schedule E.
