Capital Gain on Rental Property question

[blw300zx]

I'm doing some tax planning for this year - we sold a rental property at a long term gain.  We also have K-1 losses this year, due to depreciation, from a real estate investment.  When I input both into TT it is offsetting the gain with the K-1 loss....but I didn't think you could do that.  Can someone advise what I might be doing wrong to cause that?  or is TT right?

[Anonymous_ · Accepted solution]

I presume you are using the 2021 version of TurboTax (since the depreciation/amortization section of the 2022 versions are not yet complete).

If so, enter Forms Mode and check page 2 (part II) of your Schedule E.

[blw300zx]

@Anonymous_ yes, I'm just trying to get a feel for how much I should pay in as an estimate so using 2021 until 2022 is updated.  What am I looking for in that section?  It's showing the loss from the K-1's as allowed....the K-1 is from an apartment investment that I'm part of.

[Anonymous_]

You typically cannot use a passive loss from a different activity to offset capital gain from the disposal of a different passive activity.

Regardless, on page 2 (Part II) of your Schedule E. Also, check Form 8582.

[blw300zx]

The loss is definitely showing as allowed on P2, Part II and I've gone over the K-1 interview/input section.  Not alot to input wrong there - it's pretty straightforward.   The gain on the sale is coming through on the 1040 on line 7 and the passive loss is showing on line 8.   Doesn't make any sense

[Anonymous_]

As an aside, you should most likely also have unrecaptured Section 1250 gain (depreciation recapture) from the sale of your rental.

The input would be in the K-1 section. You need to provide more details on the type of entity, where on the K-1 the loss appears and which boxes you checked when you entered the information from the K-1.

[blw300zx]

Yes, I have some depreciation recapture on the sale of the rental.

K-1 input: 

Entity: Partnership

Limited Partner

Loss is in box 2

Boxes that have amounts/checks: 14,16,19,20

Does any of that help?

[Anonymous_]

I actually believe that to be the correct treatment at this point.

See https://www.thetaxadviser.com/issues/2008/may/disposingofanactivitytoreleasesuspendedpassivelosses.h...