Offsetting Capital Gains with Capital Loss Carryovers
Yes, you can offset the capital gain from the sale of a building using a capital loss carryover. This means you might not owe any tax on the gain from selling the property.
Understanding Capital Gains and Depreciation Recapture
Capital gain is calculated by subtracting the adjusted cost basis (which includes the original cost minus accumulated depreciation, plus any improvements made in previous years) from the sales price.
Depreciation Recapture
When considering depreciation recapture, calculate the lesser of two values: the accumulated depreciation claimed or the gain from the sale. The IRS taxes depreciation recapture as ordinary income, subject to your marginal tax rate. If the gain is fully offset by carryover losses, there will be no depreciation recapture.
Impact of Long-Term Stock Capital Loss
Long-term stock losses can offset depreciation recapture gains on the sale of investment property. Depreciation recapture is treated as a type of capital gain, taxed at a maximum rate of 25%. The IRS designates this as unrecaptured Section 1250 gain.
Tax Reporting
When short-term and long-term capital losses, including carryover losses, exceed the combined 28% gain and unrecaptured Section 1250 gain, Schedule D (1040) will not show an amount on Line 19. In such cases, if Schedule D Lines 15 or 16 show losses, there is no net capital gain, and you do not need to determine the unrecaptured Section 1250 rate.
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Can I deduct “carry-forward long term” capital tock losses against my short-term capital gains??
Can short term capital gains be offset by “accumulated long-term capital losses”?
Hi Steve, in a simplified example in the tax software, I showed long-term capital loss carryover of $100,000 from prior years. I then added $50,000 in short-term capital gains in the current year. This produced no taxable income. It produced the annual $3,000 deduction and a $47,000 carryforward loss to the subsequent year. One of the best ways to test these things is to run a trial in the software and see how it is treated in schedule D. I hope this helps!
– Purchased strip mall in 3/2003 in Chicago, IL for $4,800K
-Sold it in 11/2017 for $4,660K
-closing costs for purchase/sale $600K
-capital improvements $300K
-Total depreciation claimed over the years $2,300K
-Has long term carryover loss $550K
Questions:
– How much is the depreciation recapture, if any?
– How much is the capital gain, if any?
– How much carryover loss could offset depreciation recapture?
-How much carryover loss could offset capital gain?
-Basically how much is the tax liability of this sale?
Hi!
That is a great question & thank you for that! The best way to understand the implications is to run a trial analysis directly in the tax software for you. However, as you can imagine, we are busy with paid clients during tax season and can address after April 17th. If this is for the April deadline, we are happy to consult on this as a paid engagement. Please text directly at 954-534-6113 and we will be happy to help. Our analysis will include your IL state taxes, as well, since we practice there and have quite a few real estate clients in the area.