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RADJR1
New Member

Rental Property Depreciation queston

I sold a rental property at a loss about 10 years ago. I take a $3000 carry over deduction every year. (I think I have around $140K balance of the loss)
I am now considering selling my last piece of rental property. I owe about $120K, paid $174K, It should sell for around $300k.
My question is can I apply any of the remaining balance (loss) of the first property somehow to offset the capital gain on the second property.
Thank you.

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8 Replies
KrisD15
Employee Tax Expert

Rental Property Depreciation queston

Yes,

Any long-term Capital Loss you carry over will be applied to Capital Gains and if there is excess, 3,000 will also be applied against ordinary income. 

 

 Enter the Capital Loss, 

  • Personal Income
  • Investment Income
  • Capital Loss carryover
  • Start or Update (the program may have already included the carryover amount)

 

Next enter either a sale of rental or sale of business asset. 

Be sure to enter rental income and expenses before reporting the sale. 

 

The program applies the loss against the gain on Schedule D

 

Please be sure you are also reporting the depreciation taken (or could have been taken) in case you are subject to depreciation Recapture. 

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RADJR1
New Member

Rental Property Depreciation queston

Hi Kris,

Hey, thanks for that fast reply!

So, just to be clear-if my loss on property#1 is $140K, that 140 would come off of the total capital gain for the property I am going to sell? (#2)

Rental Property Depreciation queston

your debt does not affect your gain

 

selling price - selling expenses - cost + depreciation allowed or allowable  = capital gain

so it would be about

$126K  - selling expenses + depreciation allowed or allowable.  deprecition is recaptured as section 1250 capital gain which can be taxed up to 25%.  in addition, if your net investment income is too high you can also be subject to the 3.8% net investment tax. 

this capital gain and any other capital gain will be offset by the capital loss carryover 

Rental Property Depreciation queston


@RADJR1 wrote:

I sold a rental property at a loss about 10 years ago. I take a $3000 carry over deduction every year. (I think I have around $140K balance of the loss)


 

The loss should have been fully deductible 10 years ago.  Therefore you should not have been deducting $3000 a year for the last 10 years and you don't have any carryover to this year.

 

Out of curiosity, how was the tax return prepared 10 years ago, that resulted in such a costly mistake?

RADRJ
New Member

Rental Property Depreciation queston

Hi,

I apologize. I was not clear when I posted the question. We sold the property below market value. That is the "loss" I am referring to. That is the reason for the $3000 per year deduction.

Does that clear it up?

Thank you for your time

Rental Property Depreciation queston

Why was it sold below market value?

 

Why did that have result in you not claiming the full loss in the year of sale?

RADRJ
New Member

Rental Property Depreciation queston

we sold it below value as it was a very old house, about 100 years and needed tons of work. You can't take the below market value loss all at once. You can only take the $3k per year.

Rental Property Depreciation queston


@RADRJ wrote:

we sold it below value as it was a very old house, about 100 years and needed tons of work.

 

You can't take the below market value loss all at once. You can only take the $3k per year.


 

"Market" value already includes the fact that it was 100 years old and needed tons of work.  "Below" Market Value would mean you were paid LESS than 100-year old property that needs tons of work done was worth.

 

Even if it was sold for less than Fair Market Value, why do you think you can't take the loss?

 

And for that matter, "loss" means you sold it for less than its "Basis".  The "loss" doesn't really have anything to do with Fair Market Value.  Did you actually less it for a "loss" (sold it for less than its Basis)?

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