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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Can I deduct “carry-forward long term” capital tock losses against my short-term capital gains??
Can short term capital gains be offset by “accumulated long-term capital losses”?
Hi Steve, in a simplified example in the tax software, I showed long-term capital loss carryover of $100,000 from prior years. I then added $50,000 in short-term capital gains in the current year. This produced no taxable income. It produced the annual $3,000 deduction and a $47,000 carryforward loss to the subsequent year. One of the best ways to test these things is to run a trial in the software and see how it is treated in schedule D. I hope this helps!
– Purchased strip mall in 3/2003 in Chicago, IL for $4,800K
-Sold it in 11/2017 for $4,660K
-closing costs for purchase/sale $600K
-capital improvements $300K
-Total depreciation claimed over the years $2,300K
-Has long term carryover loss $550K
Questions:
– How much is the depreciation recapture, if any?
– How much is the capital gain, if any?
– How much carryover loss could offset depreciation recapture?
-How much carryover loss could offset capital gain?
-Basically how much is the tax liability of this sale?
Hi!
That is a great question & thank you for that! The best way to understand the implications is to run a trial analysis directly in the tax software for you. However, as you can imagine, we are busy with paid clients during tax season and can address after April 17th. If this is for the April deadline, we are happy to consult on this as a paid engagement. Please text directly at 954-534-6113 and we will be happy to help. Our analysis will include your IL state taxes, as well, since we practice there and have quite a few real estate clients in the area.