Disposition of Rental Property

[taxes---taxes]

Hello, I disposed of a rental property last year for a gain of 30k. My rental activity loss for that property was about 14k which would mean that I should be reporting a net gain of 16k. My 1040 reports the cap gain of 30k on line 7 but there is also an offsetting 30k on like 8. Now I have another property (treated separately) where losses have been suspended over the years and it seems as if a portion of those losses were used to offset the remainder of the gain from the disposed property. Can that be done? I thought you could only use the losses from the disposed property. Appears as if the software is allocating the suspended losses from the second property to offset the gain from the disposed property. Is that correct?

[taxiowa · Accepted solution]

Entire disposition of a passive property creates passive gain on disposal.  Therefore 2 things happen.

1. That properties entire passive losses are released (14K) and

2.  Any remaining passive gains are used to release taxpayers other properties passive loss carry forward (16K).

[taxes---taxes]

Thank you. Gotcha (I think). So effectively, because I had been carrying enough loss from the other passive activity, I was able to offset the remainder of the gain from the disposition against that, correct?

[taxiowa]

That is correct Taxes---Taxes---Taxes. One more taxes gets you nothing (sorry) except one more taxes. Any passive income even if from S-Corp or other will release any other carryforward passive losses.  Capital Gains are not necessarily passive but they are when they arise from sale of passive property.  So yes, that extra gain is used to offset other properties passive losses.