The entire capital loss is being deducted

[Babak]

My client sold two rental properties and the combination of sale turned into like $27k in loss. The entire loss is being deducted (through schedule 1) instead of just $3k being deducted and the rest carried forward to next year. What am I doing wrong here? I did not select real estate professional to cause this.

Thank you

[George4Tacks]

More information would be helpful.

• What kind of numbers are on 4797? 
• What kind of numbers are on Schedule E?
• What kind of numbers are on 8995-A?
• What kind of numbers are on 8582?
• Was either sale an investment sale? 
• What kind of numbers are on the worksheets for things like Unrecaptured Section 1250 gain?
• Like many other items ... 

[abctax55]

And...

Sch D

Form 8949

Form 8582

[BobKamman]

What you are doing wrong is thinking rental property is a capital asset, to which the $3,000 annual loss limit applies.  You can claim all of the loss, in the year of sale, on a noncapital asset.

Pub 544 might help (see Page 20).  

https://www.irs.gov/pub/irs-prior/p544--2022.pdf 

[sjrcpa]

Yep. You've got a 1231 loss. Look at Form 4797.

And if you had suspended PALs for these properties they get freed up, too.

[Babak]

I used the disposition part of the Depreciation section to report the sale not the Schedule D.

[Babak]

suspended PALs were freed up which is really good, but rental property gain/loss is not considered capital gain/loss? 

[sjrcpa]

It's a Section 1231 gain or loss. 

As I said before-look at the Form 4797. And read its instructions.

This is a pretty basic tax concept that hasn't changed in umpteen years.

[BobKamman]

@sjrcpa But those who weren't around for the last recession are learning new things from this one.