Offsetting gains and/or recapture with suspended loss carryover

[Stephanie Cristiano]

I am trying to decide whether to do a 1031 Exchange or to sell an investment property outright.  I have suspended loss carryover associated with the property.  I often see general guidance such as follows:  "If you had suspended losses(losses you couldn't take because your income was above $150,000) then you should be able to utilize those suspended losses to decrease your gain."

On what tax form or worksheet, and what line, do you apply these suspended losses to decrease your gain?  Where is it described in IRS instructions?  I am looking on Schedule D and 8949, Forms and Instructions, and don't see it.

I genuinely enjoy doing my own taxes and self-educating so am hoping to not have to hire a CPA.  I know consulting with a CPA is the "right" answer.  Would love to find the answers myself and think through the scenarios.  I have done 1031 Exchanges before.  It was just the clear answer at that time because I didn't have the suspended losses.

Thanks!

[Linda Weygant]

Originally posted by @Stephanie Cristiano:

Thank you Basit Siddiqi.  Yes the losses have carried over properly on 8582.  I am just wondering how they make their way to offset gains which go on 8949.  If they supposedly offset the gains at the time is a sale, where does that show up?   I do my taxes by hand because I want to make educated decisions.  

Your confusion here is that it does not DIRECTLY offset the gains, so you won't see in on the 8949.  It becomes deductible on Schedule E (computed on lines 22 through 26) and then carried over to 1040, line 17.

It becomes deductible against your AGI and other ordinary income (including Depreciation Recapture).  Capital Gains are calculated separately and you could be in a situation where you're still paying the Capital Gains tax, even though your ordinary income and income tax are reduced significantly.