I am selling a rental property at a loss this year. Can the capital loss be added to my carry forward losses from previous years?

[lindajof]

That loss will be a Section 1231 loss—which can be a good kind of loss to have. Here’s why.

First, Section 1231 losses can be used to reduce any type of income you may have—salary, bonus, self-employment income, capital gains, you name it.

Second, you may have a net operating loss (NOL) if the Section 1231 loss is large enough to reduce your other income below zero. If so, you can carry back the NOL for at least two years and use it to offset taxable income in those years. In doing so, you can recover some or all of the taxes you paid in those previous years by amending those returns.

If any of the NOL is left over after going back two years, you can carry the rest forward into future tax years to offset future income (for up to 20 years). Alternatively, you can choose to not to carry it back and just carry it forward for 20 years.    PLEASE TAXGUYBILL....tell me where this should have been reported??

[TaxGuyBill]

Yes, the loss was correctly reported on Line 14.

You should NOT have entered anything on Line 21 of your 2017 tax return.  You should have left that blank.  Then Line 41 would be negative, which is correct.

Once you amend to get rid of that Line 21 entry, Line 41 should be negative.  That then allows you to claim the NOL in other years.

*IF* you filed your tax return on time and included the proper statement to "waive the carryback" of the NOL, then you would need to MANUALLY calculate the NOL and enter that on Line 21 of your 2018 tax return.  If you did not file your tax return on time, you can't include that statement to "waive the carryback", so you would need to amend your 2015 tax return (or file Form 1045 by December 31st).  Again, TurboTax does not do the calculation, so you would need to MANUALLY calculate the NOL.

You may also consider going to a tax professional.

[lindajof]

In my 22 years of preparing incomes taxes, this situation NEVER came up for a single client.   It was a first for me!

[Carl]

When selling a rental property, I rarely see a loss. But in the very few cases I have seen a loss on the sale, that loss was allowed against other ordinary income and there was nothing to carry forward.

[lindajof]

Neither had I.  But I inherited this land and home in 2007-height of  the market $358K , held it till as rental till 01/2017.....and sold for $240K...... still had a loss even after adding back the depreciation.   I took the loss against all my 2017 income, and still had another $60K loss.

[Carl]

Well, there are different classifications for losses and as I'm sure you know, some of them can't be "mixed together" for carry over. But if done correctly and it's not to overly complicated, the TTX program can handle it. In my limited experience with multi-classification losses, the program tells me it "can't deal with it" and informs me to seek outside professional help if it's beyond the program's abilities.

[TaxGuyBill · Accepted solution]

You are mixing up types of losses, but the short answer is that all of the losses from your rental will be usable in the year of the sale.

If you sell your rental at a loss, that loss is fully usable in the year of the sale.

If your rental had Passive Loss Carryovers, those are also fully usable in the year of the sale (assuming it was sold in a "fully taxable transaction").

If you had previous Capital Loss Carryovers from something else, the sale of your rental doesn't really affect that.

As Carl noted, some people misunderstand what selling a rental property at a "loss" means.  The depreciation that you were able to take lowers your Basis, so it is common to sell at a gain even if the sale price was less than the original purchase price.

If the home was previously your personal residence, that also can have a very significant effect on determining if you had a loss or not.  If that is the case, please post back, as TurboTax misguides you in reporting the rental in certain circumstances.

[SweetieJean]

See OP's prior Q's.