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Tax questions on rental property sales and carryover losses?

Asked by: jbell 1736 views YA Discussion

I own two rental properties. Property A and Property B combined over the last three years have built up $ 9,000 in carryover losses (primarily from depreciation). I sold Property A in 2012. Can I deduct the entire $ 9,000 in carryover losses against the net price of the sale when calculating the gain? Or do I have to divide the $ 9,000 by the total number of properties (in this case, two)? Or is there another required method?

Also, as far as the gain from the sale is concerned, is that considered part of passive rental income or is it a capital gain like selling stock?

How others found here:

  • rental loss carryover
  • Passive Loss Carryover Rental Property

2 Answers

  1. Bostonian In MO on Mar 19, 2013 Reply

    If you carried passive losses forward due to the passive activity loss limitations, you deduct those when you sell or otherwise dispose of the property.

    Gain on sale is taxed as a capital gain, it is not a passive activity.

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  2. Quick Answers on Mar 19, 2013 Reply

    Hire someone. Nothing in your post is correct and your ideas show a serious lack of tax comprehension.

    If you have treated the two properties as one group, you claim $ 0.
    If you have not treated them as one group, you deduct the passive loss carryover for that property only.

    As for the gain, you will recapture the depreciation at up to 25% tax rate and the appreciation (if any) at 15%. This calculation is separate from the passive loss rules.

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