Stock Lost Offset By Land Sold Gain?
I lost about 30K in stock this year. I have couple lots I bought couple months ago very cheap. If I sell those lots, I will make 35K profit. The question is: Does the sell of my lots offset the stock lost?
Depends upon your intent behind the property purchase.
If you bought for an investment use, then the sale of the lots will be reported on Schedule D. Your stock losses, also reported on Schedule D, will be netted against the profit on the sale of your lots. Your net profit will be taxed at the applicable capital gains tax rate, while a net capital loss (up to $3000) can be used to offset your other ordinary income before taxes. Note, "Investment use" property is generally defined by the IRS as property acquired to hold for the production of income, to hold for future appreciation, or to use in a trade or business.
On the other hand, if you bought the lots to flip for profit, then your profits are reported on Schedule C and Schedule SE. Up to $3000 ($1500 if married filing separately) in capital losses on Schedule D can still be taken against your other ordinary income, but the rest will have to be carried forward to the next tax year.
Downpayment is not a loss, it is an exchange of assets. You have exchanged cash for equity.
Fire insurance is also a prepaid asset if you have paid for the year in advance, it will be expensed each month as it expires.[ Edited by Eric5 on Date 08/03/2005 ]
It probably wouldnt matter too much for tax purposes, but liability would change. Almost everyone I know puts rentals into LLCs. The only expenses you will show that can be written off will be the actual closing costs themselves. The "fees" if you will. Title insurance, prorated taxes, lawyer fees etc. You will get to depreciate the building on your taxes, which is effectively allocated the cost of the property over the "usefull life" of the asset. That is how landlords, show loses on taxes, yet have a positive cashflow.
Awesome info. Newkid, that was just what I was looking for, thank you!