topic Can I use a Capital Loss Carryover against a rental property sale gain? in Investors & landlords

Can I use a Capital Loss Carryover against a rental property sale gain?

ldgreen789 — Tue, 04 Jun 2019 19:38:50 GMT

I have a Long Term Capital Loss Carryover - Line 15 on my 1040.

Can this carryover loss be used to offset a gain on rental property sold in 2018?

Thanks

It will depend. The rental property has taken depreciati...

Rick19744 — Tue, 04 Jun 2019 19:38:51 GMT

It will depend.

The rental property has taken depreciation over the years which has reduced the basis in those assets.  When you sell, you will compute the gain; selling price less basis.  This is done for both personal property and real property for the rental.

The general rule is any gain will be recaptured as ordinary gain to the extent of prior depreciation taken.  Any gain in excess of depreciation taken will be capital gain.  It is only the capital gain component, if any, that will be used to offset your capital loss carryover.

However, you will need to look at the split between the gain on personal property and real property.  The gain on the depreciable personal property will be recaptured as ordinary gain (Section 1245 gain) to the extent of any prior depreciation.  The gain on real property is what is called "unrecaptured Section 1250 gain".  This gain is taxed at 25% to the extent of any prior depreciation taken (versus ordinary rates).

Even if you do not generate any capital gain on the sale of the rental, you will still be able to utilize $3,000 of your capital loss carryover.  As you may know, this carries over indefinitely until used.

Thanks. So in laymans terms...I can use long term carryov...

ldgreen789 — Tue, 04 Jun 2019 19:38:52 GMT

Thanks. So in laymans terms...I can use long term carryover loss against real property (rental condo) gain after adjusted basis factoring depreciation.

You can use LTCL carryover to the extent any gain exceeds...

Rick19744 — Tue, 04 Jun 2019 19:38:54 GMT

You can use LTCL carryover to the extent any gain exceeds your depreciation recapture.

Example: Section 1245 gain (personal property) is $11,000 and Section 1245 depreciation is $10,000, you would have $10,000 of ordinary income recapture and then $1,000 of capital gain.
Section 1250 gain (real property) is $50,000 and Section 1250 depreciation is $45,000, you would have $45,000 unrecaptured 1250 gain taxed at 25% and then $5,000 capital gain. So in this example you would be able to utilize $6,000 ($1,000 plus $5,000) of your capital loss carryover to offset the $6,000 capital gain. Plus you would then be able to use an additional $3,000 capital loss carryover.