Can Depreciation be adjusted if it's limited in prior taxes?

[Cindy Tang]

I have 2 rental properties, Texas and Georgia. I sold one in GA in 2018 (which we purchased in 2007) and didn't do 1031 Exch. Now, the depreciation hit me back as gain when doing the tax report. However, I reviewed the prior taxes, the depreciations were captured as a write off against my wages in 2007-2009. But since 2010 until 2017, the GA rental expense/loss was limited due to "passive income" made in TX property with Form 8582. So, the GA depreciation was not fully captured against my wages.

Question: Can I reduce the depreciation of GA property in the tax reporting?

Thanks in advance for any insights.

[Michael Plaks]

Originally posted by @Cindy Tang:

I have 2 rental properties, Texas and Georgia. I sold one in GA in 2018 (which we purchased in 2007) and didn't do 1031 Exch. Now, the depreciation hit me back as gain when doing the tax report. However, I reviewed the prior taxes, the depreciations were captured as a write off against my wages in 2007-2009. But since 2010 until 2017, the GA rental expense/loss was limited due to "passive income" made in TX property with Form 8582. So, the GA depreciation was not fully captured against my wages.

Question: Can I reduce the depreciation of GA property in the tax reporting?

Thanks in advance for any insights.

Your depreciation was baked into 2010-17 tax returns and should have been carried forward and accumulated on Form 8582. Make sure it was not dropped along the way and kept accumulating from year to year. This entire reserve will be released on your 2018 tax return, allowing you to catch up with all past losses, including all depreciation.

This lump-sum old loss will be netted against your gain which includes depreciation recapture. Everything ends up taken into account, and nothing is lost.