Can a long term capital loss carry forward offset the recapture of accumulated depreciation and capital gains on a property sale?
Yes, you can offset the gain on sale of the building against the loss carryover. Hence you will not owe any tax on the gain on sale of the building.
Capital gain is calculated as Sales price less adjusted cost basis (which is cost minus the accumulated depreciation). If there is a gain on sale, then gain to the extent of accumulated depreciation is taxed at higher rate. But in this particular case the gain will be offset by the loss carryover and hence, there will be no tax.
What about the recapture of the accumulated depreciation? Can the capital loss carry forward also offset that?
By recapture of accumulated depreciation – part of the gain gets taxed at a higher rate. The accumulated depreciation is not added back to the income.
So, if there is no gain after the offset of the gain with carry over losses – there will be no recapture of accumulated depreciation and the carry over losses will take care of that too.
Do long term stock losses offset recapture gains on sale of investment property?
Example: I sold an investment property for a $10K loss excluding $100K of recapture. I realize recapture is treated as ordinary income and taxed as such. However, If I have $75K in long term stock losses will that offset the recapture? It is confusing as to whether recapture is technically treated as capital gains, and thereby eligible for offset by capital losses, even though taxed at the ordinary tax rate.
Depreciation recapture is essentially a specially-taxed type of capital gain the resulting amount is taxed at a maximum rate of 25 percent. IRS defines as unrecaptured Section 1250 gain.
The resulting netting goes to the Unrecaptured Section 1250 Gain Worksheet, Line 19.
“When short-term capital loss and long-term capital loss (including carryover losses) exceed the combined 28% gain and unrecaptured section 1250 gain, no amount appears on Schedule D (1040), line 19. Thus, when Schedule D, lines 15 or 16 are losses, there is no net capital gain and no ensuing need to consider what part of the gain is taxed at unrecaptured Section 1250 rates.”