150k IRS rule

[Lindsey Kocher]

Selling our first investment property with goal to 1031 into a duplex.  We have deferred losses under the 150k rule.  When (after sale) would we expect to regain those losses (see them back in our personal accounts?) and are those taxable?

[Michael Plaks]

Quote from @Lindsey Kocher:

Selling our first investment property with goal to 1031 into a duplex.  We have deferred losses under the 150k rule.  When (after sale) would we expect to regain those losses (see them back in our personal accounts?) and are those taxable?

If you're selling this property in 2025, your suspended losses (you called them deferred) will be unlocked. What it means is that when you file your 2025 tax return in 2026, your taxable income will be reduced by these losses. 

But it does NOT mean that these losses will suddenly appear in your bank account. Not how it works. 

You will have lower income and lower taxes. The amount of tax reduction is not equal to your losses, it's approximately your tax bracket times your losses. For example, if you had $100k of suspended losses and you're in the 12% tax bracket, your taxes go down by $12k, not by $100k.

And $12k does not necessarily go into your pockets. Let's say you would normally get a $5k refund. Then yes, you will get a $17k refund, $12k more. 

However, if you normally would owe the IRS $5k, then the $12k tax savings will first pay the $5k shortage, and only the remaining $7k is your refund. Makes sense?

PS. I'm concerned about your statement "Selling our first investment property with goal to 1031 into a duplex."  You cannot sell first and then start a 1031 exchange. You need to start a 1031 exchange first and then sell your property. Start means hire a QI - qualified intermediary, a company that arranges an exchange. It absolutely must be done BEFORE you sell.