I have entered the rental property (Sched. E) sale information in Asset Worksheet lines 19 to 25 (date of sale, asset sale price, land sale price). Form 4797 calculated the gain taking into the consideration accumulated depreciation but NOT passive loss carryover. Schedule E line 22 shows the correct "Deductible rental real estate loss" negative dollar amount which by law, I should be able to deduct during the sale of rental. Disposition Report column "g" is also blank. So, Schedule D calculates the tax on the full gain which is not correct. Can you help?
line 22 is the deductible loss for the current year, not the passive loss carryover, and is not subtracted from the capital gain or sale, it's simply entered as this year's operating loss. On the Schedule E. The Schedule E Worksheet, has a Carryovers Smart Worksheet further down than line 22 that shows passive loss carryovers. Such carryover losses are added to the current year's operating loss, not subtracted from the capital gain or loss from the sale.