Can I offset Passive Income earned from real estate syndication with Capital Loss from Stocks?

[user17581270646]

Hi,

2 questions.

1) I have net capital loss from stocks (long term carryover).  Can I offset or cancel out with the net profit from real estate syndication sale?

2) This is for tax harvesting.  For stocks, can short term loss offset with long term gain (or) vice versa)

Thanks,

[Cindy4 · Accepted solution]

1) Generally, you cannot offset passive income with a capital loss.  However, passive income may be offset by other passive losses.  The underlying property of the real estate syndication may be considered a capital asset.  Most real estate syndications are partnerships and you receive a K-1 from the partnership with items of income and expense classified according to each type.  So, the K-1 may reflect some capital loss income that will flow through to your forms 8949 and schedule D for the netting process. 
If the loss is from the sale of the partnership interest, the passive loss rules are relaxed.  The IRS allows you to fully deduct all your current-year and suspended passive losses from a specific activity in the year you dispose of your entire interest in that activity in a fully taxable transaction to an unrelated party.  In a year when you dispose of your entire interest in a passive activity in a fully taxable transaction, you can "unlock" and use any suspended passive losses from previous years. These losses are first used to offset any gain on the sale and then can be used to offset other type...

2) Yes, short and long term capital losses are first used to offset gains of the same type and then applied ...

Thanks for joining us today! @user17581270646 

Hope this helps!

Cindy

[user17581270646]

Thanks Cindy for explanation.

Follow-up question.

1. Stocks losses are passive income loss, correct?
2. "Most real estate syndications are partnerships". That is correct.  I received K-1 as passive investor.  Example: During the sale or end of partnership, I received the net sale gain.  This considers as Passive income gain, correct?
3. Since they are alike "in-kind" passive income, can I offset the passive income loss from stocks with passive income game from syndication partnership?

Thanks much !!

[dev145 · Accepted solution]

1. As Cindy mentioned, stock loss is capital loss and not a passive loss.

2. You are correct that partnership's income/loss (Box 2) is passive income. But as mentioned above, if partnership sales any property(asset) and reported capital gains/losses on K1 (Box 8 thru Box 10), those count as capital gains and losses and can be used to offset other capital gains or losses. 

3. This also goes with above answer. Any income/loss from Box 2 is passive income and it will not offset capital gain. Since partnership is a pass thru entity, box 2 income is net profit or loss from rental activity but this do not include any gains or losses from the sale of the assets. Those are reported separate on other boxes on K1. Depending on the type of asset, you will see amount from box 8 to box 10.  When you enter k1 on personal report, any amounts from these boxes will flow to 8949 and then to Schedule D where all the capital gains and losses are reported. Any amount that is in Box 2 will go on Schedule E (Form 1040), Pg. 2. 

Hope information provided here is useful. 

[user17581270646]

Thanks @dev145  and @Cindy4 .  Your answers give me a better picture between capital (vs) passive income.   Appreciate it.

1. Understood regarding the potential capital gain / loss from the property sale, which can offset with capital loss from stocks.
2. Let's say I have passive income loss (i.e. rental, renovation loss, etc.) on first and 2nd year.  The loss balance will stack and carryover.    If the 3rd year becomes profit, then I can offset with the passive loss from previous 2 years.  Is this correct ?
3. Is there a time limit for passive loss carryover?   Other words, can I carryover the loss into another passive income to another rental property?

Thank you again !