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Level 3

sold rental property for capital gain and have prior year carryover losses

Hi,

 

I sold a rental home for a gain (e.g., 120K). The house had 5K in depreciation over the years, and it cost 4K to sell the home. The house had 15K in carryover losses remaining as of this year. Additionally, i had bout 2K in expenses this year prior to selling the home (including mortgage interest). How do I compute my capital gain and ordinary tax? Do the carryover losses reduce my cost basis? If so, can I use the entire 15K?

1 Reply
Level 17

sold rental property for capital gain and have prior year carryover losses


@rockjames3of5 wrote:

Do the carryover losses reduce my cost basis? If so, can I use the entire 15K?


No, your carryover losses do not "reduce your cost basis", but you can use the entire 15k. Previous losses from rental property (passive activity losses) that were suspended are freed up after the property is disposed of in a fully taxable transaction. Those losses will now be available to offset your other income.

 

In order to calculate your exact capital gain tax, and any part thereof which might be taxed as ordinary income (unrecaptured section 1250 gain), you will want to input your figures into tax preparation software.

 

Basically, in order to calculate gain, you are going to take your gross selling price and subtract your sales expenses from that figure (which will be your amount realized). You will then subtract your adjusted basis (typically original cost plus any improvements and minus depreciation) from your amount realized to arrive at your gain from the sale.

 

See https://www.irs.gov/publications/p544#en_US_2018_publink100072270