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Use total capital loss carryover to offset gains of sale of a rental property?

I have two questions:

1) I have a big capital loss carryover from 2017 plus more stock losses in 2018.  Normally I am not allowed to use more than $3K for capital loss in a given year.  But I sold a house for a significant gain.  Can I apply the total capital loss (both the carryover from 2017 and the loss incurred in 2018) against the gain on the sale of the house?

2)  If answer to (1) is yes, does it change in any way if the house was a rental property? Meaning it was not my primary residence and I had rented it out prior to sale.  Does it in any way prevent me from using the capital losses to offset the gains?

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Use total capital loss carryover to offset gains of sale of a rental property?

I noticed you posited the questions in the alternative and it should also be noted that you cannot change the substance of the transaction just to get better tax treatment.

 

Regardless, if the house in question was your primary residence, you will qualify for the Section 121 exclusion in gain ($250k or $500k if filing jointly with your spouse) if you had owned and used the house as your main home for two out of the last five years prior to the date of sale. See https://www.irs.gov/taxtopics/tc701

 

If you have gain over and above the exclusion amount, then your capital losses can be used to offset that gain.

 

With respect to rental property, there is no Section 121 exclusion available but you can still use your capital losses to offset capital gain on the sale. The only issue being how much is unrecaptured Section 1250 gain, which is taxed at a higher rate. 

 

 

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2 Replies

Use total capital loss carryover to offset gains of sale of a rental property?

I noticed you posited the questions in the alternative and it should also be noted that you cannot change the substance of the transaction just to get better tax treatment.

 

Regardless, if the house in question was your primary residence, you will qualify for the Section 121 exclusion in gain ($250k or $500k if filing jointly with your spouse) if you had owned and used the house as your main home for two out of the last five years prior to the date of sale. See https://www.irs.gov/taxtopics/tc701

 

If you have gain over and above the exclusion amount, then your capital losses can be used to offset that gain.

 

With respect to rental property, there is no Section 121 exclusion available but you can still use your capital losses to offset capital gain on the sale. The only issue being how much is unrecaptured Section 1250 gain, which is taxed at a higher rate. 

 

 

PaulaM
Employee Tax Expert

Use total capital loss carryover to offset gains of sale of a rental property?

The answer is maybe. See this answer from Superuser Rick19744 for reference.

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