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I am working on my taxes. I sold a rental property and

according to my tax software...
I am working on my taxes. I sold a rental property and according to my tax software (TurboTax), I had ~$100k gain. How does this get considered? Is it weighed in with all my gains and losses across my real estate rental holdings? I ask because inputing the sale and gain didn't lower my tax refund in the software, or increase my income for that matter.
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Answered in 6 minutes by:
8/29/2017
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,362
Experience: Certified Public Accountant
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Hi, my name is Mark. I will be happy to help you with your questions. The sale of the rental property should be reported on form 4797. The gain from the sale will be treated 2 ways. The gain up to the amount of accumulated depreciation would be considered an ordinary gain. The amount of gain in excess of the depreciation would be considered a long-term capital gain.

Did you have any suspended losses associated with the rental property?

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Customer reply replied 3 months ago
Do you mean losses carried over from the prior year? If so, yes. Even still, I'll have a gain. Is that long term capital gain part of my rental portfolio income? How will I be paying taxes on that gain?

Yes prior year rental losses that were not allowed. The gain should be reported on two places on the 1040. The capital gain portion should appear on line 13 and the depreciation recapture should appear on line 14.

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Customer reply replied 3 months ago
to be clear: if I had $80k in rental losses carried forward from the prior year, and a $20k loss in current year plus the $100k gain from the property sale, my tax obligation would be close to nothing?

The rental losses would be ordinary ($100K). The gain from the sale would be part ordinary (accumulated depreciation) and part long-term capital gains. Let's assume that the accumulated depreciation was $50,000. So $50,000 would be ordinary gains and $50,000 would be a long-term capital gain. So the net would be a $50,000 ordinary loss and a $50,000 capital gain. The $50,000 ordinary loss would be applied to your other ordinary income. The capital gain would be taxed at a rate of between 0-20%. In most cases it is 15%. If you are in the 0-15% bracket the rate is zero%.

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Customer reply replied 3 months ago
I think I understand. In this case the depreciation is low because I didn't improve the basis of the property much and only held it for just over 1 year. So assuming most of the $100k profit is long term gain, my tax burden would be about $15k? Is that burden lowered if I have a loss across the rest of my real estate rental income and expenses?

Yes, in most cases your tax burden on the $100,000 gain would be $15,000. This would be reduced by the rental losses. By selling the rental property you would be freeing up the suspended losses associated with this property. These losses would offset your other income and potentially reduce the amount of capital gains that are owed.

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Congratulations, you did well on this transaction.

Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,362
Experience: Certified Public Accountant
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Customer reply replied 3 months ago
Thank you. Excellent information and very helpful.

It was my pleasure. I was happy to help.

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Mark Taylor
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