1250 gain carryforward when there is a short term capital loss that offsets

[rmilling3165]

Question:  My father sold a building in 2021 at a 400k gain on an installment sale. Essentially half the proceeds were received in 2021 and half in 2022. So 200k of gain was recognized in 2021.  There was 94k of previous depreciation. He also had a short term capital loss carryforward of 171K.  Turbotax had 94k of the 200k gain as 1250 gain (previous years depreciation) but then offset this with the 171k of short term capital loss carryover. Result was there was no gain taxed at 1250 rates and line 19 of schedule D was zero. All of the gain was taxed at regular capital gains rates. This appears correct to me.

Skip forward to 2022. For 2022 is it correct that the entire 1250 gain was recognized in the prior year (and offset with the short term capital loss carryforward) and therefore there is no 1250 gain to carryover to 2022.? I am trying to do a 2022 projection using the 2021 tax return and just want to make sure there is no more 1250 gain to carryforward since it was all recognized in 2021 and offset by the short term capital loss carryover. Turbotax still has 94K of previous depreciation and is now taxing this at I believe 25 percent.  I think for the 2022 projection I have to force the 1250 depreciation to be zero (since it was all recognized the year before and offset with the short term capital loss). Am I correct in doing this?

[AmeliesUncle]

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@rmilling3165 wrote:

Skip forward to 2022. For 2022 is it correct that the entire 1250 gain was recognized in the prior year (and offset with the short term capital loss carryforward) and therefore there is no 1250 gain to carryover to 2022.?

 Turbotax still has 94K of previous depreciation and is now taxing this at I believe 25 percent.  I think for the 2022 projection I have to force the 1250 depreciation to be zero (since it was all recognized the year before and offset with the short term capital loss). Am I correct in doing this?

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Yes, that is correct, that has all been accounted for. 

The last time I checked, I think the program handled it correctly, so you may not need to force anything.   Is the 1250 Gain showing up on Line 19 of Schedule D?

[rmilling3165]

Yes using the 2021 return to do a 2022 projection, the 94k is showing up on line 19 of schedule D. I assume this is because short term capital loss carryforward is now forced at zero (since it was all used up in 2021). There is nothing to offset the portion of the gain that is 1250 gain and recognized in 2021. I have to go on the Unrecaptured Section 1250 Gain  smart worksheet of Form 6252 (Installment sales)  and change line B "unrecaptured 1250 gain recognized in prior years" from zero to 94K. Doing some more research this appears correct. When I do the 2022 return, the 200k in gain recognized next year should all be at regular capital gains rates (0, 15 and 20).  Turbotax should then be recognizing that the 1250 portion of the gain (the 94k in previous depreciation) was recognized in 2021 and there is no unrecaptured 1250 gain for 2022, correct??

Thank you for replying to me. I have been doing  a lot of research. I am a CPA but went into my own business back in 2003 (used car and motorcycle dealership). I retired in 2018. Although I prepared my own business and personal returns (and my returns were somewhat complicated) I havent seen a situation like this in quite awhile and just want to make sure I am doing everything correctly. I would hate to have to tell my dad (who is 90) "hey dad guess what I made a mistake on your return and you owe another 20k in taxes." LOL

[AmeliesUncle · Accepted solution]

Oh, I missed that you were doing a projection for 2022.  I think when you actually transfer to the 2022 software, it should do it correctly.

At any rate, you are correct, there won't be any Unrecaptured Section 1250 gain in 2022.

[rmilling3165]

I called a local CPA firm and it was suggested that I attach a statement to

the 2022 return showing:

2021  Unrecaptured 1250 gain                                   $   94,000
2021 Net short term capital loss carryover used     $(171,000)

                                                                                          ____________                                                                          Unrecaptured 1250 gain carryover to 2022             $              0