I was modeling the sale of my rental house for 2022. Saved a separate file/renamed then used easystep to add the sale (house v. lot, etc). Upon completing the form I noticed that I had a 0 income for 2021.
In reviewing the forms it appears that for some reason on Schd E worksheet for the rental house it puts in all of the carryover losses into the yearly expense form rather than just enough to zero out the profits. This is shown on line 22 Schd E worksheet for that property. Interestingly it does this for both properties I own even though I am only selling one. If I look at the form on the one not showing the sale on line 22 is only enough carryover loss to zero out the profit from the year.
Then on page 2 of schedule E the house sale file shows all carryforward (those include partnerships, trusts ect.) losses to be allowed - totaled on line 41, and moves that data to Schd 1 for form 1040. This essentially allows for all of my carryforward losses to be offset against my income rather than limit of 3K. This is how it is handled on the file without the house sale.
On the file without the house sale, only 3K is "used" from the carryover capital gains worksheet to offset a small portion of my regular income and the residual losses are shown on the carryforward worksheet.
Schedule D is the same on both files and shows the 3K loss being moved to line 7 of form 1040
I think the error is in Schd E part II where the form in the file with the house sale takes all capital losses, shows them as allowable losses, (the carryovers are shown as unallowed losses on Schd E part II of the file without the house sale) that then transfers to Schd 1 line 5 that then goes to line 8 form 1040.
While I have enough long and short term losses that the house sale will be zero out. I should have about 200K of carryforward rather that using it against my regular income.
I know this is complex, but I think I understand the law/rules and I believe that the program is making an error in allocating long and short term capital gains to offset more than 3K or regular income.
I am happy to provide either screenshots or my files for review or correcting my knowelge.
