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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 704
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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I have a rental property that I participate in rental activies

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I have a rental property that I participate in rental activies that I am thinking about selling next year. It will sell for a loss that will be over $25,000.00. I am a active participant in the rental activities for two more rental properties that I own that I am not looking to sell. I make under $100k MAGI a year. If I sell the property for a $40,000.00 loss and the other properties produce no income I can claim a $25,000.00 loss against my other income. My questions is can I claim the other $15,000.00 loss the following year against my regular income?

Welcome and thank you for giving me the opportunity to assist you with your tax question.

 

The criteria is as follows:

 

Usually, real estate rental losses cannot be used to offset other types of income such as wages, interest, dividends and gains from investments other than rental real estate.

However, there are exceptions.

 

Taxpayers that actively participate in the rental real estate activity and have modified adjusted gross income of less than $100,000. If your MAGI is less than $100,000, you can claim up to $25,000 in losses from active participation rental real estate. If MAGI is between $100,000 and $150,000, the $25,000 maximum is reduced by $1 for every $2 that your MAGI exceeds $100,000. For example, if your MAGI is $140,000 you would reduce the $25,000 by $20,000 to claim up to a maximum of $5,000 in rental loss. The limits are the same for single or joint filers.

 

Another limited exception exists for real estate professionals. The rental losses of real estate professionals are allowed fully against other income. A real estate professional is a person that spends more than 750 hours a year involved in the real estate business such as a property manager, Realtor, developer or substantial investor.

 

The loss does carry forward to subsequent years using the same criteria.

 

Please let me know if you require further information or clarification. Thank you.

Thanks for choosing JustAnswer.com! Let me provide a more concise and clear answer to your actual question.

The loss on the sale of your one rental property is going to be fully deductible in the year of the sale as an ordinary loss. The 25,000 dollar limit only applies to rental activity losses, not the loss on the sale of the rental property. Therefore you will deduct the full 40,000 dollar loss on the sale of the rental property in one year, and no part of that loss will carryforward (unless the 40,000 dollar loss brings your total income to a net operating loss).

If the 40,000 dollar loss was from your regular rental activities (not from the sale of the rental) you would only deduct 25,000 dollars and carry the remainder to the next year.

If there are additional questions, please reply to this answer so that I may assist you further. If this answers your question, please rate my performance between OK and Excellent so that I may receive credit for assisting you. Thanks for your business.
My apologies for my answer to you. I misread your question. The second expert's answer to you is correct.
Customer: replied 3 years ago.

Thanks for the info. The net operating loss bring me to my follow up question. Say I make 50,000 a year MAGI at my regular job and I have the $40,000.00 loss on the sale of the rental property. I then after closing out the year on the other rental properties have a loss of $20,000.00 in this situation I have a $10,000.00 loss for the year. Does that carry over to the next year then? What gets priority on the tax paperwork?

Yes, the NOL could be carried forward to 2014. NOL's usually carry back 5 years, and then carry forward 20 years. However, you can (and will want) to add a written election to your return that you will forgo the carryback period. This will make it so the full 10,000 dollar loss carries forward to the 2014 tax year.

Let me know if there is anything else that I can do for you.
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 704
Experience: Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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