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Level 1
May 9, 2022 2:02 AM UTC
Question

Depreciation recapture

As a passive investor, can passive ordinary income losses accumulated from depreciation be used to offset taxes related to depreciation recapture upon sale of real estate investment? 

 

For example, assume a $25,000 real estate investment purchased 5 years ago, which has been depreciated by $20,000 to a value of $5000. Let's also assume $20,000 of passive losses have been carried over for multiple years due to lack of passive income. If property is sold for $40,000, the gain would be $35,000 when accounting firm depreciation recapture. Can the $20,000 of passive losses be used to offset this gain?

 

Also, where do I enter the net operating loss carryover amounts on TurboTax? Does TurboTax enter this automatically from year to year or does this need to be entered manually every year?

2 replies

Level 15
May 9, 2022 1:53 PM UTC

Suspended passive losses are released upon a sale to an unrelated third party in a fully taxable transaction.

Level 15
May 9, 2022 1:56 PM UTC

Net operating losses must be calculated and entered into TurboTax each year. 

 

Also, if you are using TurboTax Live, you should contact your Live Expert.