topic Using passive activity losses in other investments to offset rental property sale gains in Investors & landlords

Using passive activity losses in other investments to offset rental property sale gains

Ms8172 — Tue, 10 Mar 2026 06:44:51 GMT

Married filing jointly: I sold 12 rental properties in June of 2022 that long term capital gains tax will apply. I qualify as a real estate professional and in the 6 months I can show where I have materially participated in my rental business rehab activities.
I will have aproximately 600K taxable as long term capital gains and this same year have purchased into LP multifamily syndications of real-estate (non 1031 exchange) that will create about 600k of cost segregation depreciation loss on my redeployment of capital from my rental properties sales this year.

Can I offset my LP syndications 600k loss against my rental property long term 600k capital gains because I am a real estate professional that actively participated in the same year? I do not have a W2 job Real-Estate is it.

Re: Using passive activity losses in other investments to offset rental property sale gains

Critter-3 — Fri, 18 Nov 2022 13:33:46 GMT

Yes but not directly ... they will both be reported on the form 1040 eventually using different paths ( Sch D and the Sch E page 2 ) and net out in the end.

Re: Using passive activity losses in other investments to offset rental property sale gains

Ms8172 — Fri, 18 Nov 2022 13:49:22 GMT

I was told by my current CPA that because an LP position is strictly passive at the 6 month mark of 2022 that when I sold my single families the IRS would not let me write any 55% depreciation loss (from my LP positions) which is 1.1 million invested and let me apply that to my 600k LT capital gain from the sale of my singke family rentals. I will owe roughtly 180-200k to the IRS.

He said the IRS will not let me offset my long term capital gains using 1 year cost seg depreciation loss on my LP position because the IRS will see that money as passive only. It honestly makes no sense because I don't believe the IRS differentiates rental real estate. I might be wrong... Again, I am considered a material participation Real Estate Professional in 2022.

Re: Using passive activity losses in other investments to offset rental property sale gains

Critter-3 — Fri, 18 Nov 2022 13:50:37 GMT

Ok... part of asking for tax advice on a public intenet forum is when you don't post all the information needed to give a full answer. I gave a very generic answer based on your limited information that the LP was going to pass thru a deductible loss. I would seek local professional guidance if you want a second opinion ... someone who can review all the information available. Ask them to provide references to IRS regs for their position.

Re: Using passive activity losses in other investments to offset rental property sale gains

Ms8172 — Fri, 18 Nov 2022 13:57:17 GMT

Re: Using passive activity losses in other investments to offset rental property sale gains

Mike9241 — Fri, 18 Nov 2022 17:07:23 GMT

I agree with your CPA because of IRC 469(c)(1). you may be a real estate pro but your interest as an LP means you do not participate in the activities of the partnership. That makes the activity passive. however, if you have both a general partner and limited partner interest in the LP, both k-1 losses would be deductible

Re: Using passive activity losses in other investments to offset rental property sale gains

Ms8172 — Fri, 18 Nov 2022 17:12:16 GMT

Ok, even though I qualified for the year as material participated in real estate investments I sold in 2022?