Rental Property Depreciation queston

Yes,

Any long-term Capital Loss you carry over will be applied to Capital Gains and if there is excess, 3,000 will also be applied against ordinary income. 

 Enter the Capital Loss, 

• Personal Income
• Investment Income
• Capital Loss carryover
• Start or Update (the program may have already included the carryover amount)

Next enter either a sale of rental or sale of business asset. 

Be sure to enter rental income and expenses before reporting the sale. 

The program applies the loss against the gain on Schedule D

Please be sure you are also reporting the depreciation taken (or could have been taken) in case you are subject to depreciation Recapture. 

your debt does not affect your gain

selling price - selling expenses - cost + depreciation allowed or allowable  = capital gain

so it would be about

$126K  - selling expenses + depreciation allowed or allowable.  deprecition is recaptured as section 1250 capital gain which can be taxed up to 25%.  in addition, if your net investment income is too high you can also be subject to the 3.8% net investment tax. 

this capital gain and any other capital gain will be offset by the capital loss carryover 

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@RADJR1 wrote:

I sold a rental property at a loss about 10 years ago. I take a $3000 carry over deduction every year. (I think I have around $140K balance of the loss)

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The loss should have been fully deductible 10 years ago.  Therefore you should not have been deducting $3000 a year for the last 10 years and you don't have any carryover to this year.

Out of curiosity, how was the tax return prepared 10 years ago, that resulted in such a costly mistake?