How to offset capital gain with passive loss

General Real Estate Investing
1

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???

2

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.