I have a property that I am planning to sell at a loss, the property was purchased in 2006, and used as a rental for some years. Then in 2018 I began a substantial remodel intending to make it into a vacation rental, the renovation cost me over 200K, and now with COVID, the property has been sitting vacant and I have lost the passion to continue to operate the rental. I estimate if I sell it now I will end up losing close to 350K.
I also have some stock holdings which has gained substantially over the years, especially since COVID, to unrealistic levels that I considered unsubstainable (such as Tesla), I would like to sell some of it but I want to minimize the long term capital gains tax.
So the question is if I sell some stocks where the gains is 350K, will this be washed out by the real estate loss of the same amount so I will have zero net gain? Or is this much more complicated than this?
The tax consequences of selling real estate may not be what you expect. For example, depreciation recapture can turn what looks like a large loss into a smaller one, or even a gain. If your real estate sale does indeed produce the capital loss you anticipate, it can be used to offset capital gain from selling stocks.
Be aware that unused capital losses carry forward but not back. If you sell the stocks now, and for some reason fail to complete a sale of the real estate by the end of the year, you’ll pay tax on the stock gains and have a potentially unusable capital loss on the later sale of the real estate.