My rental home sale closes in 3 weeks. California resident. Approximately 430K taxable as capital gain. Thinking of a 1031, but I have other passive investments in real estate that I will be making this year as a LP unrelated to this property that will see substantial passive activity losses due to bonus depreciation in Year 1. Enough to wipe out much, if not all, of the 430K.
Can I offset my 430K capital gain with all of my passive losses that occur throughout 2021?
I'm also considering a partial 1031 exchange. Can passive losses be applied to remaining boot?
I've searched a great deal and found conflicting information. This suggests I can.
The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity. The same holds true if you own several properties and treat them each as separate activities for tax purposes.
Sincere thanks for helping me tax strategize.
Best,
Paul
ps Side note: is real estate professional status relevant here (pro or con)? I do not think I will qualify in 2021. Does it matter?
