Use of losses in years after property was sold

[phil106]

I sold a rental property in 2018 (a qualified taxable transaction).  Over the 12 years I owned the property it had operating losses (expenses exceeding income) and those losses were suspended as I did not have other passive income to use them against.  When I sold the property TurboTax brought all the losses forward and used the total as an adjustment to my 2018 income.  However the total of the losses were more than my income, therefore I had losses "leftover".  Should I expect those "leftover" losses to carry forward to be used in 2019?

[tagteam]

---

@phil106 wrote:

....However the total of the losses were more than my income, therefore I had losses "leftover".  Should I expect those "leftover" losses to carry forward to be used in 2019?

---

In the year you dispose of the entire interest in the rental property in a fully taxable transaction to an unrelated third party, all of the suspended passive losses are released and can be used to offset other classes of income.

Note that you should review your 2018 return as you most likely have an NOL (net operating loss - not calculated by TurboTax) which may be carried forward to the 2019 tax year.

See https://turbotax.intuit.com/tax-tips/rental-property/selling-rental-real-estate-at-a-loss/L2RKgClm4

[Anonymous]

you probably have an NOL which can be used against 2019 income.   IRS pub 536 contains the worksheet to compute it.  however it is somewhat complicated so post back if you have questions

https://www.irs.gov/pub/irs-pdf/p536.pdf

TT does not compute  NOL's 

[phil106]

Thanks for the responses and the NOL seems exactly what I need to do.  I had just one rental property and therefore only one year of NOL when I sold the property in 2018.  I am sorting through the worksheet and will see if I need to post back with any questions.  However, one immediate question is, once I calculate the NOL for 2019, where will I insert it in my 2019 tax forms and, since TT does not calculate it, what do I include as supporting documentation.

[phil106]

Apologies as I am not sure as the proper way to continue the conversation (first time posting) so I ended up replying directly to you and adding a reply as part of the thread.

Thanks for the responses and the NOL seems exactly what I need to do.  I had just one rental property and therefore only one year of NOL when I sold the property in 2018.  I am sorting through the worksheet and will see if I need to post back with any questions.  However, one immediate question is, once I calculate the NOL for 2019, where will I insert it in my 2019 tax forms and, since TT does not calculate it, what do I include as supporting documentation.

[tagteam]

@phil106 Although TurboTax does not calculate an NOL, the software makes entering an NOL from a previous year a simple matter (see the screenshots below - the first is from the Online version of Premier while the second is from desktop Home & Business).

[phil106]

As always thanks to all for replying.  I have reviewed Publication 536 and gone over the worksheet and agree it is not simple.  I may need to consult a professional but figured I would try to see if I can push through this by asking questions.  First here is what TT did on my 2018 taxes when I sold my rental property in 2018:

- Used Form 4797, Sale of a Business Property to calculate the capital loss when I sold the rental property and transferred to Schedule 1, Line 14.

- Used Schedule E to calculate final year (since I did own it for half of 2018) income/expenses and to bring forward the total operating losses that had been suspended and transferred the total to Line 17 Schedule 1

- Totaled all lines on Schedule 1 (which included investment capital gains from Schedule D).  This resulted in a negative number and transferred to Line 6 on 1040 but only used a portion of the total to apply to my return and line 7 (AGI) is listed as a negative number.

Therefore when I look to fill out Worksheet 1 I assume I am filling it with numbers from my 2018 return to see if there is a NOL to carry forward to 2019 (which is my first question).  Also line 1 says to subtract your itemized or standard deduction from your AGI.  My 2018 AGI (line 7) is a negative number but is that what I am to use?

[tagteam]

Yes, you will be using the figures from your 2018 for the NOL carryover and you combine those two numbers (positive and negative).

[Anonymous]

there is a carryover worksheet - not sure it's available in the version of  TT your using but you can try by typing in searchbox "carryover".   you enter the nol as a positive amount  on line 14a of worksheet in the 2018 column. this carries it into your return.  schedule 1 line 8

publ 536 which discusses NOL's says that there is a requirement to attach a computation of the NOL 

as of now, in the version i have, there is no worksheet to do the NOL computation.  you may not be able to e-file because you'll need to submit the worksheet you prepared to compute it.   or you can efile without it and wait to see if  the IRS to request the computation.   

however, I can not say what the IRS might actually do,   it is possible they could disallow the NOL and bill you.  you would then have to contact the IRS to find out what you can do to support the NOL deduction 

[tagteam]

---

@Anonymous wrote:

as of now, in the version i have, there is no worksheet to do the NOL computation.  you may not be able to e-file because you'll need to submit the worksheet you prepared to compute it.   

---

TurboTax provides a screen to explain an NOL carryover. The screenshot below is from 2019 Online Deluxe, although I am not absolutely certain if the explanation precludes the ability to efile.

[phil106]

Thanks for the additional responses concerning e-file which is a question when using the NOL.  Some follow up questions.  If entering the NOL is under Business Deductions and Credits but in my case there is no "business"  as all this is from selling the rental property I owned, will TT allow this entry to exist without a Schedule for a business.  Also, if you do fill out the "explanation" where does TT put it in your return if you efile?

[tagteam]

You can enter the NOL into TurboTax without creating a "business schedule" (Schedule C is what I presume you are referring to); there is an entry on Schedule 1 of your 1040 indicating the figure on Line 8 is an NOL.

An explanation statement is also created provided you complete the one offered in TurboTax. It simply provides detail on how you calculated your NOL. I believe, but am not certain, that the statement is transmitted along with the rest of your return. Consequently, it might be safer to print and mail your return with the statement attached.

[Critter]

The  NOL carryforward calculation  is not supported by TT and is not a simple calculation and is very confusing to non tax pros  so I highly recommend you seek local professional assistance  OR   upgrade to one of the LIVE programs to get the help you need.  

[tagteam]

I agree with @Critter and @phil106 should also be advised that for losses arising after 2017, the TCJA limits the NOL deduction to 80% of taxable income (and that limitation does not appear to be implemented in TurboTax at this point in time).

[phil106]

I agree and have already put in a call with an accountant.  In looking over the Worksheet it is obviously biased towards a NOL from a "business"  as it has entries for "non-business" items (capital gains/losses, deductions, income) and the equivalent for "business".  Since I was a W-2 wage slave and just owned a rental property that was sold in 2018 figuring out what from my return goes in "business" entries and what goes in the "non-business" entries is a challenge.  In addition, haven't even touched what happens to the NOL on the state return.

I am aware of the 80% rule and also that the 2018 tax act also limited NOL to carry forward and basically eliminated the carry back option.