The Fruit Salad of Capital Gains and Losses
You’re forgiven for the mental mistake that so many taxpayers make each year.
You sold some assets—some at a gain, some at loss. And you earned income, perhaps from rentals, stocks, pensions or W2 employment. At the end of the year, you naturally want to offset all of your losses against all of your gains and income.
In a simpler world—or maybe just another country—your year-end taxable income simply would be the net of what you earned and what you lost. But in the United States, income, gains and losses actually are a fruit salad that cannot be blended into a tax smoothie. Pairing these fruits (gains and losses) correctly can be complicated.
Losing money on an investment is bad enough, but the tax code twists the knife by categorizing your pain. These include real estate losses, passive losses, ordinary/active business losses and capital losses.
If your recent crypto gamble failed, you cannot deduct this capital loss from your rental income. If you take a loss on the sale of a rental, you probably cannot deduct it from gains on a lucky options play. You may be able to deduct some of your rental loss against salary income, but subject to limits. The dos and don’ts are endless.
Furthermore, if you qualify under IRS rules as a “Real Estate Professional”, your real estate rental property losses can become “ordinary” and deductible against all other categories, subject to limits. Yet some of your real estate income could be subject to self-employment tax, possibly defeating other tax benefits of being a real estate pro.
And what about your accrued passive rental losses? Are you tracking them? Have you missed an opportunity to use them as deductions? Do you even know what a “passive loss bucket” is?
Bottom line—your final tax bill can be an unwelcome surprise if you improperly mixed-and-matched your gains and losses. Proactively “harvesting” your losses with the help of a tax professional can save you both money and heartache come tax time.
For more information about tax-advantaged securitized real estate investments, please call 1031 Capital Solutions at 1-800-445-5908 or visit our website, 1031capitalsolutions.com.
Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor.
This is for informational purposes only, does not constitute as investment advice, and is not legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.