Cashing in on deferred passive losses
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
Dear Tax Talk,
I have deferred passive losses on multiple rental properties that have accumulated over the last eight years to the total of around $180,000. I recently sold two of these rental properties with a net capital gain of around $200,000. I have been getting conflicting answers as to whether I can offset these two sells with the cumulative passive losses of the other properties. I know that I can offset the individual losses on the two properties sold, but would like to cash in on the other losses at the same time.
More On Real Estate Taxes:
Any help? Thank you.
Stop getting conflicting answers, and get a good CPA before you overpay your taxes. There is no gray area; your passive losses from any property or activity can go to offset income or gain from any other property or passive activity. This is true whether or not you dispose of the other properties and especially true when you do dispose of other properties.
When your adjusted gross income, or AGI (with certain modifications), exceeds $150,000, the tax law limits your losses from passive activities such as rental real estate. The losses instead are suspended and carried forward to future years, when your modified AGI allows you to claim them or if you have income, including gains, from sales of assets used in a passive activity.
In your case, your $200,000 in gain can be offset by all of your carryforward of $180,000, and you would end up with a net capital gain of $20,000. You should also be aware that capital losses from stock trading can offset the $200,000 in gain. If you have carryforward capital losses or losing stocks, you may want to get rid of them to increase your deductions.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.