Offsetting Capital Gains with Capital Loss Carryovers
Yes, you can offset the capital gain from the sale of a building using a capital loss carryover. This means you might not owe any tax on the gain from selling the property.
Understanding Capital Gains and Depreciation Recapture
Capital gain is calculated by subtracting the adjusted cost basis (which includes the original cost minus accumulated depreciation, plus any improvements made in previous years) from the sales price.
Depreciation Recapture
When considering depreciation recapture, calculate the lesser of two values: the accumulated depreciation claimed or the gain from the sale. The IRS taxes depreciation recapture as ordinary income, subject to your marginal tax rate. If the gain is fully offset by carryover losses, there will be no depreciation recapture.
Impact of Long-Term Stock Capital Loss
Long-term stock losses can offset depreciation recapture gains on the sale of investment property. Depreciation recapture is treated as a type of capital gain, taxed at a maximum rate of 25%. The IRS designates this as unrecaptured Section 1250 gain.
Tax Reporting
When short-term and long-term capital losses, including carryover losses, exceed the combined 28% gain and unrecaptured Section 1250 gain, Schedule D (1040) will not show an amount on Line 19. In such cases, if Schedule D Lines 15 or 16 show losses, there is no net capital gain, and you do not need to determine the unrecaptured Section 1250 rate.
