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???

Passive losses on the property that you still have are not “unsuspended” until you dispose of the property. You can use these losses to offset other passive income (i.e. Schedule E income, perhaps some Partnership income), but you cannot use it to offset the capital gain.