(212) 641-0673 george@dimovtax.com

Yes, you can offset the capital gain on sale of the building against the loss carryover. Hence you may not owe any tax on the gain from the sale of the building.

Capital gain is calculated as Sales price less adjusted cost basis (which is cost minus the accumulated depreciation plus any improvements you made in the prior years).

What about the recapture of the accumulated depreciation? Can the capital loss carry forward also offset that?

To calculate the depreciation recapture amount, you need to determine the lesser of two values: the accumulated depreciation you claimed or the gain from the sale of the property. The depreciation recapture is considered ordinary income so it is taxed at your marginal tax rate.

If there is no gain after the offset of the gain with carry over losses – there will be no depreciation recapture.

Do long term stock losses offset recapture gains on sale of investment property?

Yes, depreciation recapture is essentially a specially-taxed type of capital gain the resulting amount is taxed at a maximum rate of 25 percent. IRS defines as unrecaptured Section 1250 gain.

The resulting netting goes to the Unrecaptured Section 1250 Gain Worksheet, Line 19.

“When short-term capital loss and long-term capital loss (including carryover losses) exceed the combined 28% gain and unrecaptured section 1250 gain, no amount appears on Schedule D (1040), line 19. Thus, when Schedule D, lines 15 or 16 are losses, there is no net capital gain and no ensuing need to consider what part of the gain is taxed at unrecaptured Section 1250 rates.”

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