Offsetting Capital Losses

Today TaxMama hears from Praveen in North Carolina, who asks. “Can I deduct gains from a rental property sale against my capital loss carryovers from stock sales?

Dear Praveen,

That’s a very good question.

The way to do this is a bit complicated, but you probably can offset those stock losses. Essentially, when you sell real estate at a gain, you’re apt to have two kinds of gain (though not in all cases):

1. Ordinary gain – comes from recapture of deprecation.

This gain is reported on page 1 of your Form 1040.
2. Capital gain – from the rest of the profits
This gain is reported on Schedule D. This will offset your capital losses.
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Read IRS Publication 544 to learn how to report the sale of assets.

You will use Form 4797, Part III to report the sale.

As I said, sorting out the ordinary and capital gains can be complicated. Someone with experience will know whether or not your sale is subjected to depreciation recapture. So, please get professional help when you report this sale. And if you haven’t sold the property yet, but are just making plans, meeting with a tax pro to test the results before selling the property.
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And remember, you can find answers to all kinds of questions about selling real estate and other tax issues, free. Where? Where else? At

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