Passive losses on a residential rental property sale

[Joseph00]

I sold a residential rental property in 2019 and the passive losses made my 2019 AGI go negative.  Can I carry the remaining loss over to my 2020 taxes? If so, how do I do that as I didn't see anywhere on Schedule E or on my 1040 to do that.

[tagteam]

A loss on the sale of rental real estate has the potential to generate a net operating loss (NOL).

TurboTax does not support the calculation of an NOL; you need to do that manually and then determine whether to carry the NOL back (up to five years) or carry it forward.

See https://www.irs.gov/publications/p536#en_US_2020_publink1000177330

[Joseph00]

Thanks for the response!

I read the IRS link you provided in your response.  The losses that I had when I sold my residential rental property, I had passive activity losses.  In the document you linked to, I only saw references to capital losses.  Do the passive losses from my residential rental property become capital losses when I sell the property or are they the same as capital losses?

[tagteam]

@Joseph00 

They are ordinary losses (technically, Section 1231 losses) which can be used to offset all other types of income and gain.

[Joseph00]

@tagteam 

So, what you are saying is that my passive losses became ordinary losses when I sold the property?  Is that accurate?

Also, with respect to the NOL....is there a reason one would carry it back 5 years vs carrying it forward?  

[tagteam]

Yes, your suspended passive losses are released upon a complete disposition and can be used to offset all other types of income.

Carrying back an NOL for some taxpayers can result in an immediate refund. 

[Joseph00]

Ok, thank you @tagteam !

I calculated my 2019 NOL by using 2019 Pub 536 worksheet 1 and I do have a NOL. Should I have done anything on my 2019 return to denote that there is a NOL?  The pub wasn't very clear that I didn't have to do anything other than carry it forward (assuming I waive my carry back) or carry it back to 2014.

I'd like to waive my carryback, mainly because it will result in more of a refund due to me being in a higher tax bracket for 2020.....When I read this bulletin: https://www.irs.gov/irb/2020-18_IRB#REV-PROC-2020-24 it reads to me that the due date to waive a carryback for a 2019 NOL has been extended to the due date of my 2020 taxes with all extensions....am I reading that correctly?  (Sometimes I wish the IRS would be more direct in their language.) 

[tagteam]

Yes, it is in Section 4.01(1) of that Rev. Proc.:

(1) Elections to waive carryback under § 172(b)(3) for NOLs arising in taxable years beginning in 2018 or 2019. A taxpayer within the scope of this revenue procedure may elect under § 172(b)(3) to waive the carryback period for an NOL arising in a taxable year beginning in 2018 or 2019. Such an election must be made no later than the due date, including extensions, for filing the taxpayer’s Federal income tax return for the first taxable year ending after March 27, 2020.

[Joseph00]

Was there anything I needed to do in my 2019 tax return to denote that I had a NOL aside from the fact that my AGI was negative?  Pub 536 was not very clear that I was to do anything else on my 2019 taxes once I used worksheet 1 and determined that I had a NOL in 2019.  Thanks in advance!

@tagteam 

[tagteam]

The instructions are set forth below.

A taxpayer must make an election described in this section 4.01(1) by attaching to its Federal income tax return filed for the first taxable year ending after March 27, 2020, a separate statement for each of taxable years 2018 or 2019 for which the taxpayer intends to make the election. The election statement must state that the taxpayer is electing to apply § 172(b)(3) under Rev. Proc. 2020-24 and the taxable year for which the statement applies. Once made, the election is irrevocable.

[Joseph00]

I believe what you are pointing out is: there wasn't anything I needed to do on my 2019 tax return with respect to the NOL or waiving my right to a carryback on the NOL.  I only need to attach a statement waiving my right (as described in bulletin 2020-18 Section 4.01(1) ) to my 2020 tax return in order waive my right to the carryback.  Is that accurate?

@tagteam 

[tagteam]

Yes, the statement that you are electing to apply § 172(b)(3) under Rev. Proc. 2020-24 for the 2019 taxable year. 

[QuinntinMiller]

Thank you for such valuable information. It is very important for me.