Capital gains tax calculation: mortgage interest/expense deduction from multiple properties

[stevolution84]

We have a couple of properties, the first one is making profit and the second one is making a loss due to the first one having much higher principal (different structure of the mortgages).  Both properties combined is making a loss as well (stated in Schedule E, Form 1040) but the combined losses are not deductible from our salaries due to our income being over the threshold so the combined losses are just accumulating year by year.  We've owned them both for more than 5 years.

The questions is if we were to sell the first one and when calculating capital gains tax, can we deduct the combined accumulated loss that was reported as part of Schedule E, Form 1040 year by year from the capital gains calculation or can we only deduct the property-specific loss (property-specific mortgage interest, taxes, expenses etc) since we've owned the property?

Thanks in advance.

[TomYoung]

The deferred losses are not "capital" in nature and will not affect the capital gain calculation.  If your income hadn't been high enough to eliminate the immediate recognition of the losses as they occurred you'd simply have recognized the losses each year. 

[Critter]

The accumulated loss on the second rental will not be released until that rental is sold ... it is not released when the first rental is sold. 

[DanielV01]

When you sell the property, the suspended loss for that property will be deducted on Schedule E, if you have been treating the rental as a separate rental activity from your other properties.  If you have not, then the suspended loss will continue to accumulate until you either have passive gain that you can use the loss against or substantially dispose of all related rental activities.

[Anonymous]

the loss can not be deducted.    schedule E rental profits are allocated among schedule e rental losses so what you  end up with is that the net losses are only attributable to those with losses.   there should be a supporting worksheet for form 8582 showing the losses are solely attributable to property 2.   therefore disposing of property 1 in and of itself will not free up the passive loss carryover.