Can I deduct passive rental property losses at time of sale?

2 Replies

I sold my NJ rental property in 2017. I also had a passive loss for the rental property in 2017. With the sale of the rental my income was over 150k. I recognize that one can not take a passive loss if their income is over 150k; however, from what I have read, it states that if you dispose of/sell your rental that you can deduct the passive losses the year you sell. My question is this, can I deduct my passive losses that occurred in 2017 on my 2017 taxes or does it get rolled over to 2018 because my income is too high?  I have heard conflicting info. My accountant is showing rental property passive losses to be rolled over to 2018 on my tax docs and I don’t think that is accurate. I reside in NC and the property is in NJ. Any input would be greatly appreciated.

@Chris L.

If we have passive losses from rental properties and our income is above $150,000 the losses get suspended. The losses are released from suspension when you dispose of the property.


Example - you buy a property in 2010 for $100,000. 
Your taxable loss each year was $1000 and your depreciation was $2700 every year. You were not able to take any of the losses because your income was above $150,000.

in 2017 - you have 7,000 of suspended losses and $1000 of loss generated in 2017.
You sell the property for $125,000 and your adjusted basis is 78,400(21,600 of accumulated depreciation).

You calculate 46,600 of gain but you are entitled to report the $8000 of losses on schedule E.

Let me know if you have any questions.

Thank you so much for the info. I greatly appreciate it. I let my accountant know theres an error and he is attempting to fix it.  He said that NJ does not allow net losses on rental properties ; however, those losses can get added to NJ basis so he said he has to go back and review all my losses over time that may not have been allowed previously for NJ purposes. 

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