Sale of rental property- Loss more than $60,000

[dande36]

I sold a rental property that I have held for over a year at a loss of more than $60,000 in 2016.  If I understand correctly I will only be able to deduct $3,000 of that loss for the next 20 years totally $60,000.  If that is true does it really matter if I maximize all possible loss deductions since it will come to around $80,000 which is a lot more than I will be allowed?  Thanks

I am not interested in carrying back the loss for 2 years as if I do I assume I will have to file amended returns for 2014 and 2015?  Is that correct?  I read that if you do NOT want to carryback the losses there is something you need to fill out.  Does TT do that for me or will it ask if I want to carry it back?

[TaxGuyBill · Accepted solution]

First, let's check if you actually have that large of a loss.

• Was it always a rental, or was it previously a personal property?
• If it was previously a personal property, was the Fair Market Value (FMV) when you converted to a rental less than what you had paid for the property?  If so, you use the FMV as your basis for the loss, not your Cost Basis.
  
• Are you factoring in the depreciation?  That lowers your "basis", which will decrease your loss.
  

Assuming you do have a loss, your rental loss is not limited to $3.000.  The entire loss goes on your current year tax return, and will offset other income that you have on your tax return.

If you don't have enough income to offset that loss, Line 41 of your Form 1040 will be negative.  That would create a "Net Operating Loss" (NOL).  If you do not want to carry your Net Operating Loss back two years, yes, TurboTax will ask you if you want to "waive the carryback" of the NOL.  When you print out return, you will see a separate piece of paper that shows that election to waiver the carryback per section 172(b)(3).

I am unsure if TurboTax automatically carries that number to next year, if you have a NOL and you "waive the carryback", be sure check if it is on your tax return, or enter it on the tax return next year (it shows up as a negative number on Line 21 of your Form 1040).

[dande36]

Thanks It has been a rental property since I purchased it in 2005.  Bought it for 235,000 and sold it for 139,900 less closing costs of around $8,000-  Turbo Tax calculated the depreciation at around $80,000 and is giving me a NOL of $106,066.  That sounds like too high a number if you factor in the deprecation of around $8,000 per year for 10 years or 80,000.   Our income for 2016 will be a LOT less than that, probably around $20,000

[TaxGuyBill]

Something still seems wrong.  Were you accumulating "Passive Loss Carryovers" on Form 8582 (about $90,000) in previous years?

Unless you haven't mentioned a bunch of improvements, ($90,000) the numbers you gave me show a $23,100 loss ($235,000 minus $80,000 is your "basis" of $155,000, then $131,900 minus $155,900 gives a loss of $23,100).

Just to clarify terminology, "rental loss" is the loss from the sale of the rental, and "NOL" is based on the negative number on Line 41 of your Form 1040 (AFTER it offsets all of your other income).

[dande36]

I thought that number sounded way wrong.  No previous losses.  No improvements.   Your number is more like what I expected.  Maybe Turbo Tax is not fully set up yet with formulas and such.  Thanks for your help

[dande36]

One more question- There is an item on my closing statement from the sale under Financial called offset credit from Seller to Owners policy-  It is part of our closing expenses for the sale.  I don't know what that is.  Is it deductible?  Thanks again

[TaxGuyBill]

I'm not sure what it is either, but at any rate it DOES seem to reduce what you received, so yes, it probably reduces your selling price or increases your selling costs.

[dande36]

I just went back into TT and entered my info on the sale again and TT calculated the depreciation at 80,901 but still does not seem to be deducting that amount from the totals.  Or perhaps I am supposed to manually enter that number someplace.   I guess when I actually get down to filing I will call them.  Appreciate your help Bill

[TaxGuyBill]

Are you entering the sale in the Rental section, and are selling it in the "Asset" section?

[dande36]

Rental section - it asks if I disposed of the property in 2016 then takes me to the sale of property section  That is where I entered the year purchased year sold etc

[dande36]

I can add the title charges, recording fees and survey charge to the $235,000 that I paid for the house is that correct?

[TaxGuyBill]

Yes, I *think* those are all added to your Cost Basis.

Are you accounting for the Sale of Land separately?  If you entered the Cost of Land (on the same screen as you entered the cost of the entire house), you should also enter the Sale Price of Land (TurboTax treats it as two separate sales).

[dande36]

I do not know how much of the sale is land so I entered the entire amount in the house section

[TaxGuyBill]

Did you enter the COST of land where you entered the cost of the house?

[dande36]

no I don't know how to separate the land from the $235,000 that we paid for the house