Sale of Rental Property at Loss and Suspended PAL

[KC-CPA]

A new client sold his rental property in California and had a loss on sale of property of $16k and he has cumulative passive activity losses not taken of $83k from when he purchased the rental property (2007) when he sold it 08/01/2016. The loss is calculated with a sales price of $237k, SL (straight line) depreciation of $60k, Purchase price was $300k with $15k or expense of sale, making basis $315k

He has no other rentals.

His Total W-2, interest and other income is $116K. Using the loss on rental sale $16k and passive activity losses $83k, his net income stands at $17k. After itemizations he is at ($6K) and then to 0 income after exemptions.

Here is the questions:

The loss on the sale of property is being reported on form 4797 and on the other gains and losses on line 14 of 1040, Could it be a capital loss because SL depreciation was used and limited to $3k and then carried forward?

Is there any way to carry forward the loss on property or passive activity losses, or does the full amount have to be taken for both of them in the year the rental was sold (this is the way I believe tax code requires us to treat it).

The client believes and has been told there is a way to carry forward the losses for future years so he gets the benefit in future years since he is already at no taxable income for this year.

Thanks for any input you may have.

[TaxGuyBill]

It all needs to be used this year. Sorry.

[Roland Slugg]

TGB is correct that the entire loss, consisting of the current year's loss, the loss on the sale and the prior year suspended losses for that activity are all deductible in 2016. The suspended losses of $83k are only deductible if they relate to the activity that was sold, not to other passive activities the T/P may own. I believe this is what you said in the OP, but just wanted to make sure.

The loss does, indeed start on F-4797 (in Part I), and from there flows to F-1040, line 14. It is an ordinary loss, not a capital loss, so the $3,000 limit does not apply.

[KC-CPA]

Thank You for your responses and confirmation. Just as a side note based on my research as well, if his income lower he could have NOL that could be carried back or forward but his net income is still positive so that does not apply here.