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June 4, 2019
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I have Vacation Home Loss Limitations on Depreciation for a rental property. When the property sells, will I need to pay Recapture on the Loss Limitations?

  • June 4, 2019
  • 4 replies
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Example: this year's depreciation is calculated as $4,000: $1,000 reported on Schedule E + $3,000 in Vacation Home Loss Limitation.  If the property is sold, will the Depreciation Recapture be calculated from the $1,000 of depreciation reported on Schedule E or $4,000 total calculated depreciation...even though I wasn't allowed to take the full $4,000?

Best answer by TaxGuyBill

You will be taxed on the gain from the depreciation that you were eligible to actually use.  So if the vacation home rules did not allow it, there will not be any tax from that depreciation.

4 replies

TurboJakeAuthor
June 4, 2019
Does anyone else have another answer for this?  Looking to clarify since the current proposed answer specifically mentions "Passive Activity Loss Limitation" instead of the "Vacation Home Loss Limitations" which are part of this question.
April 11, 2021

@cmg1

It appears there are two situations taking place and it does get confusing.

  1. Depreciation: The depreciation deduction for the vacation rental will be recaptured and reportable Section 1250 gain if and when the property is sold. It is considered as a deductible expense every year.
  2. Passive Loss:  In a year when a rental is disposed of by sale the unallowed passive losses are fully deductible. They are not lost, therefore TurboTax knows exactly what to do with the sale if you answer the questions about sale in your tax return.  You tell TurboTax that each asset is sold and for how much, as well as the expense of sale.  The sale tells TurboTax that your full passive loss (current year and any prior year unallowed losses) is allowed to be deducted as well.

Both are used correctly and when they should be, depreciation each year of the rental; and passive losses completely used up in the year of sale.

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May 7, 2021

Are you saying that the vacation rental depreciation that I was not allowed to claim this year as an expense will be treated as though it was claimed after the sale and I will have to pay tax on the gain of that depreciation that I was not allowed to write off?

MichaelL1
Employee
June 4, 2019
Answer did not address vacation deprciaiton not able to be used.
Employee
June 4, 2019

You will be taxed on the gain from the depreciation that you were eligible to actually use.  So if the vacation home rules did not allow it, there will not be any tax from that depreciation.

April 8, 2021

Same situation. The Dep report shows the FULL depreciation, nothing about what was Vacation Home Loss Limitation, that I could not write off. When I sell, how does T-Tax know how much has to be recaptured?

February 16, 2022

I need someone to tell me how Vacation home loss limitation is calculated 

LeonardS
February 16, 2022

You may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental activity.

 

This also applies if you own several properties and treat them each as separate activities for tax purposes. However,  if you own multiple properties and elected to aggregate them as one activity for tax purposes and only sell one, you can not take the deduction because you won't have sold "substantially all" of your interest in your rental activity.

 

You must sell the property to an unrelated party—that is, a person other than your spouse, brothers, sisters, ancestors (parents, grandparents), lineal descendants (children, grandchildren), or a corporation or partnership in which you own more than 50%. And, the sale must be a taxable event—that is you must recognize income or loss for tax purposes. This means tax-deferred Section 1031 exchanges don't count, except to the extent you recognize any taxable income. (I.R.C. §469(g).)


 

 

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