Question

How to apply PAL against gains from sale of rental property

Forum|Forum|4 years ago
February 14, 2022
1 reply
0 views

Hello,

In 2021, we sold a rental property which we owned from 2015-2021. Each year it was rented, we accumulated some passive activity losses which we could not apply to that year's taxes. Now that we sold it, we want to make sure we apply that PAL against the sale of the house. We bought the property for $275K and sold it for $600K. We have ~63K in PAL to apply to the sale. Am I incorrect in deducing that we should be able to knock out our gains on the sale with the PAL?

When I attempt to run this through TT I am still left with a large tax bill on the sale, so wondering what I am missing here.

TurboTax Premier Online

LeonardS

Yes, you can offset your gain by any unused PAL that is not automatically carried forward when you sell the property.

To record this passive loss carryforward, if it is not carried forward automatically in TurboTax follow these instructions.

Click the Federal Taxes tab
Click Wages & Income
Scroll down to the Rental Properties and Royalties section
Click the blue Show More in this section
Click Start (or Revisit) next to Rental Properties and Royalties (Sch E)
Click Yes
Click Continue
Click the blue Edit button next to the rental you'd like to add info for
TurboTax CD/Download version: Continue until you reach the screen entitled Do any of these situations apply to this property?
- Scroll to the bottom and check the box next to I have passive activity real estate losses carried over from a prior year
TurboTax Online version: Scroll to Less Common Situations > Click Edit next to Carryovers, limitations, at risk info, etc.
Click Continue
You'll be able to input the carryover amounts on the next screen

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

N

ntheath2004Author

Thanks @LeonardS . I did that, but I don't think the data is flowing through the forms correctly. I did the math manually and assuming that the ~63K of PAL is applied 1:1 against capital gains, I should be left with roughly ~14K of depreciation recapture owed. But i'm getting a 70K+ adder to my tax bill when I complete this rental sale section. I need to figure out where I am going wrong here.

Critter-3

The prior year unallowed PAL will be released in the year of the sale HOWEVER it is not entered directly against the capital gains. It shows up on the Sch E line 18 and will balance off the depreciation recapture. Review all of the tax forms carefully to see how this is reported.