Sale of Rental Property

[vbyrd7058]

My husband and I have a rental beach property that we are entertaining selling.  We have had it for 15 years as rental property the entire time.  We have accummulated a large sum of money in our Passive Activity Loss bucket.   When I tried to do a what if using our 2019 taxes it did not bring in any of our passive losses from prior years to offset the net gain.  What can I do to get an estimate of how this transaction would have affected us in 2019???????   THANKS FOR ANY HELP

[Carl]

First, establish your adjusted cost basis on the property.

Adjusted Cost Basis = What you paid for the property, plus what you paid for any property improvements incurred while you owned the property.

From that total subtract your total depreciation taken on the property for the entire time you owned it.

This gives you your adjusted cost basis.

Now subtract the adjusted cost basis from your sale price. (We're ignoring selling expenses for now, as this can only be a rough estimate.)  This gives you your reportable gain.

From your reportable gain subtract your passive activity losses. If you have a positive amount left over, it's your taxable gain and you're done.

If the subtraction of your passive losses gets your taxable gain to zero, any remaining losses can be deducted from "other" ordinary income up to a maximum of $3000 per year, until all those losses are used up.

Note that if you are an active participant in the rental activity, you can also deduct an additional maximum of $25,000 from your "other" ordinary income in the tax year you sell the property, provided the property was classified as rental property during that tax year you sell the property.

[vbyrd7058]

Champ Carl,  thank you so much for your counsel.  I sold another condo 6 years and it automatically populated our "loss" bucket to offset all the gains and left some too.

Question:

• What form are you suggesting.  I was using 4797.
• Do I just subtract my loss bucket number from my gain?  The math on the form 4797 doesn't work that way.   It shows $398K sales price, $221K depreciation with cost basis of $414 with gain showing $205.  I have a loss bucket of $138K .  Where do I account for the loss bucket? 

THANK YOU FOR YOUR HELP.  VERY MUCH APPRECIATED!!!!!!!!!!!!!

[Anonymous · Accepted solution]

on the worksheet for the rental property, there will be a quickzoom link to the asset entry worksheets that contain the details of the assets.   the sale info is entered in the assets entry worksheet - starting with line 20. the sales price and closing costs need to be allocated between the land and building. disposal of the activity changes the treatment from passive to non-passive so all previous unallowed losses will be allowed without limitation - flows to schedule E page 1.  the sale of the building will flow to form 4797 page 2.  the sale of the land will flow to form 4797 page 1.  the redetermined gain on 4797 flows to schedule D line 11. the capital gain portion and the sec 1250 recapture portion flow to the capital gain worksheet where the tax is computed. 

[Critter-3]

You can try out different scenarios in the downloaded version ... do not try this on the online version ...

This is my mini version of  a tutorial  that should be in the downloaded program: 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
• 1.  Open your return in TurboTax. 
• 2.  From the File menu, choose Save As. 
• 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
•  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >>  use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?

[AmeliesUncle]

As Hackinoff pointed out, the Passive Loss Carryover does NOT change the gain on Form 4797.  It is a direct deduction on Schedule E.

If it is not showing up on Schedule E, go to the introductory part of the rental section and indicate it was sold.

[Critter-3]

https://ttlc.intuit.com/questions/1933977-i-sold-my-rental-property-how-do-i-report-that?jump_to=ans...

[vbyrd7058]

Thank you so much.  Very Helpful!

[vbyrd7058]

Thank you for this information, good to know!!!!!!!!!!!!

[vbyrd7058]

Thank you.  You were the most helpful at guiding to me the right forms.  I have been doing taxes a long time and this had stumped me.  Very much appreciated.