Future sale of rental property with TurboTax

[10276]

I have used TurboTax for the past 15 years to do income tax with reporting a rental property in Georgia.

In reviewing my 2025 income tax return, TurboTax shows:

1. In Form 8995 line 16  a large amount ($$$$) for Total Qualified Business (loss) carry forward. 

2. In Form 4562 worksheets for Depreciation and Amortization Report shows ($$$$) in the Prior Depreciation column and ($$$) in Current Depreciation column.

I am planning to sell this rental property in this Summer 2026 and file income tax in 2027 reporting this sale with TurboTax and would expect a large amount ($$$$$) of Capital Gains from this transaction.

Questions:

1. Will TurboTax automatically use the entire Qualified Business loss amount in part 1 above to alleviate the amount of Capital Gains tax and other incomes taxes if any?

2. As for the Recaptured Depreciation tax amount calculation, will TurboTax use the total amount reported in the Prior plus the Current Depreciation columns and half 2026 depreciation used in part 2 above... Or, TurboTax will used the 27.5 yrs life method to calculate the Recapture Depreciation Tax amount used in Schedule D calculations. I have to ask because the amount of recaptured depreciation taken is not the same depending on which method TurboTax may uses.

Your answers will help me calculate the estimated taxes for 2026.

Thanks and looking forward to your expertise answers 

[DianeW777]

The answers to your questions are shown below.

Questions:

1. Will TurboTax automatically use the entire Qualified Business loss amount in part 1 above to alleviate the amount of Capital Gains tax and other incomes taxes if any?
   • It depends. If you are referring to the unallowed passive losses, then all of that total loss will be used on Schedule E and reduce any other taxable income in the year of sale.
2. As for the Recaptured Depreciation tax amount calculation, will TurboTax use the total amount reported in the Prior plus the Current Depreciation columns and half 2026 depreciation used in part 2 above... Or, TurboTax will used the 27.5 yrs life method to calculate the Recapture Depreciation Tax amount used in Schedule D calculations. I have to ask because the amount of recaptured depreciation taken is not the same depending on which method TurboTax may uses.
   • Yes, TurboTax will use all prior depreciation, to the extent of the gain on the sale, as the recapture amount and because it's residential rental property the maximum tax will be 25% if your overall income is at or above that tax rate.
   • Any remaining gain, if applicable, will fall into the capital gains tax rates, which will be no more than 20% tax, again, depending on your overall income in 2026.

Note: How to Avoid the Underpayment Penalty: In general, you may owe the penalty for 2026 if the total of your withholding and timely estimated tax payments didn’t equal at least the smaller of: 

1. 90% of your 2026 tax, or 
2. 100% of your 2025 tax. Your 2025 tax return must cover a 12-month period. Special rules for certain individuals. 

Note: High-income taxpayers.  If your adjusted gross income (AGI) for 2025 was more than $150,000 ($75,000 if your 2025 filing status is married filing separately), substitute 110% for 100% in (2) above.

[10276]

Thanks for your reply about using qualified allowable loss carry over to reduce the capital gains in selling the rental property.

I have performed a hand calculation to estimate the taxes that will imposed on the "total gain" Line 24 and "depreciation allowed" Line 22 from Form 4797 Part III for the future sale.

I found out that the only place that I used the "Capital Loss carry over" from 2025 income tax to reduce the 2026 capital gain is in "Schedule D Capital Gains and Losses" line 14 to obtain the net long term capital gain; then reported this gain to Form 1040 Line 7a Capital Gain (attached Sch. D) to compute the Adjusted Gross Income.

Form 1040 Line 16 Tax ... will come from "Schedule D Tax Worksheet" Line 47 is Tax on all taxable income including capital gain.

Question: Is my finding "correct" so far in estimating the 2026 income tax calculation with future sale of rental property?

Thanks in advance for your reply.

[DianeW777]

Yes, you are following the right path to arrive at your estimated income for 2026. All gain for house and land will end up on Schedule D. 

If there is a sale of any other assets such as a lawn mover, appliance, etc these would not go to the Schedule D or receive any special capital gain treatment for a gain at or below the depreciation claimed on the asset.