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Sale of Rental Property

Forum|Forum|5 years ago
July 23, 2020
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My husband and I have a rental beach property that we are entertaining selling. We have had it for 15 years as rental property the entire time. We have accummulated a large sum of money in our Passive Activity Loss bucket. When I tried to do a what if using our 2019 taxes it did not bring in any of our passive losses from prior years to offset the net gain. What can I do to get an estimate of how this transaction would have affected us in 2019??????? THANKS FOR ANY HELP

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on the worksheet for the rental property, there will be a quickzoom link to the asset entry worksheets that contain the details of the assets. the sale info is entered in the assets entry worksheet - starting with line 20. the sales price and closing costs need to be allocated between the land and building. disposal of the activity changes the treatment from passive to non-passive so all previous unallowed losses will be allowed without limitation - flows to schedule E page 1. the sale of the building will flow to form 4797 page 2. the sale of the land will flow to form 4797 page 1. the redetermined gain on 4797 flows to schedule D line 11. the capital gain portion and the sec 1250 recapture portion flow to the capital gain worksheet where the tax is computed.

Carl11_2

Employee

First, establish your adjusted cost basis on the property.

Adjusted Cost Basis = What you paid for the property, plus what you paid for any property improvements incurred while you owned the property.

From that total subtract your total depreciation taken on the property for the entire time you owned it.

This gives you your adjusted cost basis.

Now subtract the adjusted cost basis from your sale price. (We're ignoring selling expenses for now, as this can only be a rough estimate.) This gives you your reportable gain.

From your reportable gain subtract your passive activity losses. If you have a positive amount left over, it's your taxable gain and you're done.

If the subtraction of your passive losses gets your taxable gain to zero, any remaining losses can be deducted from "other" ordinary income up to a maximum of $3000 per year, until all those losses are used up.

Note that if you are an active participant in the rental activity, you can also deduct an additional maximum of $25,000 from your "other" ordinary income in the tax year you sell the property, provided the property was classified as rental property during that tax year you sell the property.

V

vbyrd7058Author

Champ Carl, thank you so much for your counsel. I sold another condo 6 years and it automatically populated our "loss" bucket to offset all the gains and left some too.

Question:

What form are you suggesting. I was using 4797.
Do I just subtract my loss bucket number from my gain? The math on the form 4797 doesn't work that way. It shows $398K sales price, $221K depreciation with cost basis of $414 with gain showing $205. I have a loss bucket of $138K . Where do I account for the loss bucket?

THANK YOU FOR YOUR HELP. VERY MUCH APPRECIATED!!!!!!!!!!!!!

A

Anonymous

Answer

on the worksheet for the rental property, there will be a quickzoom link to the asset entry worksheets that contain the details of the assets. the sale info is entered in the assets entry worksheet - starting with line 20. the sales price and closing costs need to be allocated between the land and building. disposal of the activity changes the treatment from passive to non-passive so all previous unallowed losses will be allowed without limitation - flows to schedule E page 1. the sale of the building will flow to form 4797 page 2. the sale of the land will flow to form 4797 page 1. the redetermined gain on 4797 flows to schedule D line 11. the capital gain portion and the sec 1250 recapture portion flow to the capital gain worksheet where the tax is computed.