Asked anonymously

Will my passive losses from a rental property be realized at the time of sale when we are selling above the purchase price?

Purchase Price: $230,000
Losses annually (for about 5 years): $12,000
Sale Price: $250,000

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  Answers  |  2

May 25, 2016

Hi Anonymously,

Are you a real estate professional? Also discuss this with your tax advisor.

You may deduct your suspended passive losses from the profit you earn when you sell your rental property. To take this deduction, you must sell "substantially all" of your rental activity. If you own only one rental property and sell it, then you can take the deduction, because that property is your entire rental activity. The same holds true if you own several properties and treat them each as separate activities for tax purposes. However, many landlords with multiple properties elect to combine them as one activity for tax purposes. In this event, if you own several rental properties and only sell one, you can't take the deduction because you won't have sold "substantially all" of your interest in your rental activity.

There are two exceptions to this rule. One is for real estate professionals. They are allowed to deduct unlimited rental losses against any income they earn. The other exception is in the form of a special rental loss offset that permits landlords with incomes up to $100,000 to deduct up to $25,000 in losses each year (the offset is gradually phased out for landlords with incomes over $100,000 and up to $150,000).

Feel free to contact us directly for more information on your specific situation. No obligation.

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$commenter.renderDisplayableName() | 09.29.20 @ 01:01


May 26, 2016

I believe so but be sure to check with your CPA.

$commenter.renderDisplayableName() | 09.29.20 @ 01:01