How to offset capital gain with passive loss.

In February 2015, I sold a rental property and made a capital gain of 18.2 K (Sale price - Initial purchase price + depreciation).

During the 4 years I held that property, I incurred an accumulated passive loss of 12.3 K (including 6K of depreciation) which was carried over each year (I have no other passive income).

Since I meet the 3 criteria of a qualifying disposition, I believe that I could apply my accumulated passive activity loss against the gain from the sale of my property. However, I do not understand how that will translate into my tax return. I filled form 4797, form 8582 as well as Schedule E and D. Where do the PALs offset the capital gain? I think I missed a step here.

Any help?


MC Wagner is the man to answer this question, he is on here from time to time and hopefully see's and answers your question. If you don't see an answer in a couple of weeks try to send him a PM through the REI Club system.


Yes. suspended passive losses should release on disposition.

The passive loss will flow through Sch E from 8582 and end up on line 17. The cap gain will flow from 4797/Sch D and end up on line 13.

work thru the 8582 worksheets be sure to start with prior years unallowed loss. you’ll have an over all loss on that property that gets to E.
If you have other suspended losses, that’s probably where you are hung up.

Thanks a lot Mcwagner.
I did not fill line 22 of Schedule E with the result of Form 8582. That was my mistake.

In case someone else has the same question, let me clarify your sentence (between brackets):

“The passive loss will flow through Sch E from 8582 and end up on line 17 [of form 1040]. The cap gain will flow from 4797 to Sch D and end up on line 13 [of form 1040].”

In my case, being a non-resident alien, it is form 1040nr with lines 18 and 14.

Glad to help.