topic Selling a Rental Property & Depreciation Recapture in Investors & landlords

Selling a Rental Property & Depreciation Recapture

mattkeene — Wed, 02 Feb 2022 16:35:39 GMT

I'm definitely doing something wrong. I sold a rental residential property in 2021 that I bought in 2007. I depreciated it ever since, but lousy investor that I am, the property lost money every year with other expenses even aside from depreciation. I've got so $50K in non-allowable carryover losses. But when I subtract the depreciation over the years from the original purchase price for the adjusted cost basis, Turbotax spits out that I had a gain of $77,000 or so that I owe taxes on. I still had a mortgage of about $130,000 and only walk away with about $42K at settlement when all was said and done. It seems at the very least that the carryover loss should be deducted from that "gain." What am I missing???

Re: Selling a Rental Property & Depreciation Recapture

Anonymous_ — Wed, 02 Feb 2022 16:53:04 GMT

@mattkeene wrote:

It seems at the very least that the carryover loss should be deducted from that "gain." What am I missing???

You should see your prior year suspended (unallowed) losses on both Form 8582 and Schedule E.

If you do not, it could be the case that, for some reason, those suspended losses did not transfer in to your 2021 return.

Re: Selling a Rental Property & Depreciation Recapture

mattkeene — Wed, 02 Feb 2022 17:10:27 GMT

So I see them on my 2020 return, but because I haven't finalized and paid for Turbotax yet, I can't see the tax form. But I'd think if it was there it would have been factored into the calculations, no? I bought the property for $175K, I sold it for $203K. $27,000 in selling expenses aside from the mortgage payoff, and for most of the ownership, the rent didn't quite cover the mortgage, much less insurance, property management fees, property taxes, and repairs. So it seems really odd to me that I could possible have a net gain of $76,000.

Re: Selling a Rental Property & Depreciation Recapture

AmeliesUncle — Wed, 02 Feb 2022 19:29:33 GMT

The $50,000 of carryover losses do NOT directly get subtracted from the $77,000 gain. The get subtracted separately and should show up on Schedule E.

If you are not seeing the separate subtraction of the $50,000 on Schedule E, then go back into the introductory part of the rental section (where you enter the address, etc. of the rental property) and be sure to check the box that you sold the property.