Capital gain is calculated as Sales price less adjusted cost basis (which is cost minus the accumulated depreciation). If there is a gain on sale, then gain to the extent of accumulated depreciation is taxed at higher rate. But in this particular case the gain will be offset by the loss carryover and hence, there will be no tax.
What about the recapture of the accumulated depreciation? Can the capital loss carry forward also offset that?
By recapture of accumulated depreciation – part of the gain gets taxed at a higher rate. The accumulated depreciation is not added back to the income.
So, if there is no gain after the offset of the gain with carry over losses – there will be no recapture of accumulated depreciation and the carry over losses will take care of that too.
Do long term stock losses offset recapture gains on sale of investment property?
Example: I sold an investment property for a $10K loss excluding $100K of recapture. I realize recapture is treated as ordinary income and taxed as such. However, If I have $75K in long term stock losses will that offset the recapture? It is confusing as to whether recapture is technically treated as capital gains, and thereby eligible for offset by capital losses, even though taxed at the ordinary tax rate.
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.”
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.