Depreciation recapture vs. suspended losses on sale of property

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don’t think you can offset the depreciation recapture in any case.

This is my understanding. This is why we sold our house vs. renting it out. You can't offset the losses with w-2 income (unless you're in the "business of real estate," but the depreciation continues to reduce your basis, and you lose the residence "safe harbor," so you get hammered on taxes when you sell. The only way it makes sense is if you plan to keep the house forever and let your kids inherit it, and then they get the stepped up basis (Biden has the elimination of stepped up basis in his platform, fyi). However, in the meantime, you have the hassles and expense of maintenance (which you also can't deduct). Unless you're in a market that has a ton of room for appreciation, it makes more sense to put your money in a the market.

It's in close-in NOVA, about a 15-minute commute from the Pentagon. It has appreciated about $40k in the last two years, but who knows if that will continue. I don't know that I could stomach putting all that money in the market, though, so I think a ton of it would just sit in my bank account.

You would be able to offset capital gain with all the passive loss that you have not been able to deduct. How much is your depreciation to-date? You would only owe 25% on that recpature.

Or you can do 1031-exchange and buy something else.

No, you can’t use operating losses to offset capital gains, I don’t think. And there are no capital losses for real estate.

Yes, you can use passive operating loss to offset capital gain. They can't tax you double and also won't let you use previous loss.

I don’t think this is correct. They might be applicable to income but not capital gains.

[Anonymous]

I stand corrected. This is useful: https://www.nolo.com/legal-encyclopedia/what-happens-suspended-passive-losses-sell-rental-property-foreclosure.html

[Anonymous]

You can balance it out with the capital gain. Collective passive loss of several years could balance the $40K capital gain tax. You won't be able to get rid of depreciation recapture though.

BTW, your capital gain would be lower after paying the agent and closing costs.

[Anonymous]

Suspended depreciation is an add back to basis at the time of sale. So worst case you just don’t get to tax the tax benefit early.

[Anonymous]

Just pay the damn taxes. Why be so greedy over a few thousand dollars

[Anonymous]

And please don’t contact your CPA asking for an immediate answer first thing Monday. Your lack of planning is not their emergency.

[Anonymous]

Anonymous wrote: And please don’t contact your CPA asking for an immediate answer first thing Monday. Your lack of planning is not their emergency.

Indeed. Tax filing deadline is July 15 this year. Many are busy.

[Anonymous]

Anonymous wrote:Just pay the damn taxes. Why be so greedy over a few thousand dollars

Okay, I assume you would also be okay just paying several thousand dollars in additional taxes that you may not actually owe due to Byzantine tax regulations. I am trying to do my due diligence, not evade taxes.

I actually did ask her last month when she was doing my taxes and she gave me a vague/imprecise answer. I didn’t ask her to clarify because interest rates were higher, so we were thinking we would just sell. I emailed about it on Friday after finding the office closed and it turns out that she’s actually on maternity leave, so I’m a little SOL.