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Tax Planning/Sale of Real Estate and Passive Activity Losses


I have 7 rental properties from which I generate over $48,000 of positive Sch E cash flow after deductions for expenses and depreciation. All these properties have appreciated over the years greatly. I am licensed so I am not limited to the amount of loses I can take.  

I would now like to consider selling them. A while back I invested in some alternative investments (partnerships) that all were horrible however I have over $69,000 of carryover un allowed loses that is dwindling down at a rate of $1500 a year.

Can I use those carryover loses to reduce the tax on the sale of the real estate?

Richard - The answer depends on the type of gains versus the losses.  If the sales of the rental properties generate passive gains, they can be offset by your passive losses.  

However, from your question, it sounds like the "unallowed losses" are capital losses, not passive losses.  They should be reducing at a rate of $3,000 per year unless you are filing married filing separately.  So, in general, the answer would be yes, in that the rental properties would be a capital gain, assuming that I have your facts and circumstances correct.

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As an Enrolled Agent, I am fully capable of providing tax advice as it relates to personal and business income taxes. Enrolled Agents are the only Federally licensed tax practitioners and are admitted to practice before all administrative functions of the IRS. My specialty is working with small business owners who file Schedule "C" and helping them to structure their business in such a way as to maximize as many tax advantages as possible. I also enjoy working with individuals who have both routine as well as complex tax situations. I prefer to concentrate on individuals and small business tax planning.


I have a 25 year background in financial services including tax, bookkeeping, insurance, real estate and securities. I was previously the Chief Financial Officer of a local and national franchise organization. I am currently semi-retired, but used to own (in partnership with another EA) an individual and small business financial engineering firm where I work with nearly 2,500 individuals and small business owners in nearly every state and almost every continent, assisting them in all aspects of their tax and financial well-being. I have prepared or reviewed more than 8,000 tax returns in my career.

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Enrolled Agent, Admitted to Practice Before the IRS, Accredited Tax Preparer, Fellow of National Tax Practice Institute, Certified QuickBooks ProAdvisor (1999-2011), Sleeter Group Certified QuickBooks Consultant, Life & Disability Insurance Agent License (California, Texas, Maine), Real Estate Agent License (California); Many years of continuing education in all these fields.

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