Is this cut/paste from turbo tax true???

Per my 1st post to this web site, I was planning on selling a rental property at a loss to get tax write off, but this info in turo tax caught my eye, is it really true? I won’t be able to write off tax loss with income from all other sources jobs/stocks over 150k? I guess if it true, it will just be carried forward to another year.

Why are my Losses Limited?

Rentals are considered passive activities for most owners. There are rules that apply to passive activities that limit the losses you can take on your tax return. Here are a few reasons why your losses may not be fully deductible:

  • You do not actively manage your rental so losses are only allowed if there are profits from other passive activities.

  • You do actively manage your rental so $25,000 in losses are allowed if your income is $100,000 or less.

  • Your income is over $150,000. None of your real estate loss is allowed.

  • Your income is over $100,000 and less then $150,000. Some of your loss is allowed and some of your loss is carried over to the future.

  • You are filing Married Filing Separately (MFS) and you live with your spouse during the year. This reduces allowable losses to zero.

  • You are filing Married Filing Separately (MFS) and you live apart from your spouse the entire year. Your allowable losses are reduced by 50% to $12,500

Hmmmm I dummied up my turbo tax return, said I had 190k of income, a 30k loss on selling rental property and it seemed to allow it showing income on line 22 of 160k. I didn’t complete the return, but it seems to contradict what they said in the info pop up.

After reading both posts and your comments, it appears you are confusing “operating loss deductions” with P&L-on-sale. The (normal) operating deduction limit of $25k means you’re permitted to reduce other taxable income by up to $25k from your real estate rental net operating loss. When you sell (outright vs 1031 exchange), you either report a net gain or a net loss overall. In the case of depreciable real estate, the amount you depreciated over the years you’ve rented it will be recaptured as ordinary income (not treated as long term capital gain/loss).

Best advice: hire a CPA for an hour to review and advise.

thanks for taking time to reply, I agree I was mixing operations and disposal .
Will seek local professional before proceeding.

Here is how it works:

Let’s say your adjusted basis is $100K. This means that your purchase price plus the cost of improvements, and, minus depreciation taken over the years equals $100K.

If you are selling at a loss, then you are selling for less than $100 (in this example), so let’s set the net sale proceeds (sale price minus selling expenses and seller concessions) at $85K. In this example you have a tax loss of $15K. There is no depreciation to recapture, so you don’t have to worry about the tax on unrecaptured depreciation.

Your $15K loss will be a capital loss on Schedule D where your loss will offset other capital gains. If your net capital loss is greater than your net capital gain, then you are allowed to take up to $3000 capital loss on your $1040 each year. The loss you can’t claim this year will be carried forward to next year.

Hope this helps.

After reading it, thought you are confused and made confused me as well.