Impounded Losses

[Corduroy Frog]

Flat-Top has cumulative rental losses of $45,000 that he has not been able to take because of excessive income. For purposes of focusing on the issue, let's assume he has no other rental property.

On January 1, 2007, Flat-Top sells the rental property for $200,000. His original cost was $120,000 and over the years he has taken $25,000 in straght line depreciation.

Which is the proper reporting?

1. Flat-Top reports a LTCG of $105,000. On schedule E, he reports a rental loss of $45000 on the bottom line captioned "allowable rental loss."

2. Flat-Top reports a LTCG of $60,000. On schedule E, nothing is reported as a gain or loss.

3. Other (if "other" please give details)

Thanks in advance for your help.

The Frog

[Davc]

1................................................. ..........

[Corduroy Frog]

Thanks

DavC, thanks for your well-researched response.

Just having fun, DavC - keep those cards & letters coming!

[DonPriebe]

OK - I'll try ...

[QUOTE

1. Flat-Top reports a LTCG of $105,000. On schedule E, he reports a rental loss of $45000 on the bottom line captioned "allowable rental loss."

[/QUOTE]

Yes but ...

He files a 4797 showing the $200K sales price, $120K basis and $25K depreciation on lines 20 thru 22 on the back. Since it's 1250 property and he used straight line, line 26g is zero. The $105K LTCG carries to line 11 of the D, but the $25K also carries to line 19 of the D so he doesn't get the 15% rate on the whole $105K. And the E shows the $45K loss as you said.

Nit-pick: He would also show some depreciation for this year even though he sold the property on January 1. Mid-month convention and all that nonsense. And that gets added to the $25K everywhere.

[Corduroy Frog]

Good Answer

Don - thanks - confirms my best thoughts. Good luck to the Syracuse Orangemen this year if you follow them...

The Frog