Question

Pennsylvania Net Gain or Loss from the Sale, Exchange or Disposition of Property

Forum|Forum|4 years ago
February 8, 2022
1 reply
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I sold a rental property this year that had losses in prior years as such I understand that I cannot apply those prior year losses to the gain on the sale of rental property this year but part of the losses that were not used in prior years was depreciation which is being deducted from the cost basis of the rental property to calculate the gain on the sale of the rental property. It doesn't seem right that I'm reducing the basis of the rental property and thus picking up more gain on the sale for depreciation I never got the benefit for. Does the basis for PA need to be adjusted to only account for the depreciation that was actually taken to reduce income?

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PattiF

No, the basis for the rental does not need to be adjusted. Your losses for the property that you were not able to use in past years, "suspended passive losses", will be deducted when you sell your rental property.

The losses have been carried forward until you have disposed of the property in 2021. All of this will be calculated automatically in the rental income section of TurboTax if you have used this program in the past. This will be used to decrease the taxable gain that you have after depreciation recapture from the rental.

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T

TROSAuthor

Ok I sold the property and entered the information into Turbo Tax but it says that suspended losses in a prior year are not able to offset the gain in Pennsylvania. Is there another way to do this?

What you described below is how it worked for Federal purposes but not for Pennsylvania.

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ThomasM125

You are not allowed to carryover unused losses on rental activities in Pennsylvania, so there is no other way to report them on your state tax return. You can read more about this here:

Net Income (loss) from rents and royalties

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