Stock Losses To Offset RE Capital Gains?
If one were to flip a property and enjoy a $16,000 gain, can that gain be offset by $16,000 in losses from the sale of stocks...therefore resulting in a Zero tax implication?
Thanks
No. You report your stock market activity on Schedule D. Net losses from Schedule D which may be taken against your other ordinary income are limited to $3000 per year.
Your flip activity profit is ordinary income reported on Schedule C with your self-employment income taxes calculated on Schedule SE.
When you are done, only $3000 of net losses from your Schedule D activity is used to offset income from your schedule C activity.
Thanks Dave. Not exactly what I wanted to hear, but it is what it is.
THX Again.
Would this be true if you did not have the flipped property within a business (LLC), or the LLC is single member and thus disregarded, and then the property would be considered an investment, and thus fall under Schedule D.
No, property flipping is an active real estate activity. In the absence of any business entity, you report your flip income on Schedule C.
Investment property is that property held for the production of income (rental use) or for future appreciation. With a flip, you do neither. This property is considered inventory to your business, and your profits are ordinary income -- not investment income. Additionally, your profits are subject to self-employment income taxes.
You may be trying to draw an analogy between property flipping and short term equity positions in the stock market. Your stock market profits are considered portfolio income -- a different tax treatment altogether.
Dear Dave,
I am planning on selling one of my properties that is underperforming. I have owned the property for 4 years. Because this is not flipping, can I use past losses in the stock market to offset capital gains realized by the sale of this property/
Yes, Curt, your property is an investment property and your capital gain can be used to offset other capital losses.
Depreciation recapture will still be in play at 25%. Instead, consider doing a tax-deferred 1031 exchange to postpone capital gains tax treatment on your rental property. Save the stock market losses to offset future stock market gains.
I would speak with a CPA face to face. I've used significal capital losses from stocks against flipping gains without any issues.
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Moderator Note: What anyone actually does may not present an issue until the Tax Return is audited. The objective of this forum is to suggest the correct tax treatment for a situation.
We have done so in this forum by telling you the correct tax treatment for a property flipping activity. If you are flipping property, and want to continue taking the wrong tax treatment, you are just playing tax audit roulette. Your luck may hold out.[ Edited by DaveT on Date 05/08/2004 ]
Highlife,
I suggest you print out this topic thread and take it to your CPA. Ask for an expert opinion as it may impact your own past and future tax returns.