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koolkat
Returning Member

Can gains from a rental property sale offset rental losses from another property?

I have 2 rental properties. I'm planning to sell one property this year and convert the other one into my primary residence. 

 

Property 1 (selling in May) will have rental losses of $5000 for the year and positive sales proceeds of $400,000. Property 2 (converting into my primary residence in August) will have rental losses of $10,000 for the year. 

 

Can I offset the rental losses for both properties using the sales proceeds from Property 1?

3 Replies

Can gains from a rental property sale offset rental losses from another property?


@koolkat wrote:

Can I offset the rental losses for both properties using the sales proceeds from Property 1?


Converting this property from rental use to personal use is not a sale to an "unrelated third in a fully taxable transaction", which is necessary for suspended passive losses to be released.

koolkat
Returning Member

Can gains from a rental property sale offset rental losses from another property?

@tagteam What happens to the suspended passive losses for this property if I live in it as a primary residence for 2 years and then sell it (without converting it back into a rental)?

Can gains from a rental property sale offset rental losses from another property?

You would have unrecaptured Section 1250 gain (aka depreciation "recapture" - assuming you sold at a gain) and your suspended passive losses would be released.

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