Can I Offset My Capital Gains?

Question

I've had a property for a little over a year. By the time of its closing its gains will qualify as Long Term Capital Gains, and I expect them to be around $90,000. As I'm a fairly new investor will the capital gains taxes on this be partially offset by the losses at my other properties next tax season? I've got some improvements to make that won't be that much but will be in the $25-35000 range on some of my other properties.

I can't do a 1031 because the cash from this property is earmarked for another property that has to be done in cash.

JASON V. · Answer

I don't think there's any requirement that the new property needs to have financing in a 1031 exchange. Without knowing more about your situation, you might able to still utilize a 1031 and offset at least some of the gains.

Dave Foster · Answer

@Alecia Loveless, You can purchase less than you sell.  You simply pay tax on the difference.  In your cash your break even point is the $90K profit.  If you buy a property that is $90K less than you sold then there is no tax savings from the 1031.  However, if you purchased a property that is $40K less than you sold you would pay tax on the $40K but shelter the other $50K of profit in your purchase.

Called a partial exchange and a perfectly viable strategy if you're wanting to reduce debt.

Sean Ross · Answer

To reiterate what @JASON VERLEY said, there is no requirement that property purchased in a 1031 exchange has financing, even if the property sold was encumbered with a mortgage.

Here are the related rules:

• property received should be at least as valuable as the property sold
• the value of any debt paid off during sale should be replaced, but that can be replaced with new debt or outside cash
• the intent for both properties should be for long-term business or investment use

@Alecia Loveless is the property you need to purchase with all-cash going to be used for investment as well?

Wayne Brooks · Answer

There is no direct offset by losses or other improvements.  More importantly, simply being a year from purchase to closing doesn’t qualify it for cap gains if the intent was always a flip.

Alecia Loveless · Answer

Thanks @Dave Foster I appreciate you clarification on the matter.

Alecia Loveless · Answer

@Wayne Brooks The original intention was a long term rental until my realtor and I both came to the same conclusion within 12 hours of each other that I would never make anywhere near as much money on a rental as I would reselling the property in our current market.

Thank you for your information on my dilemma.

Alecia Loveless · Answer

@JASON VERLEY Thank you for your help Jason!

Alecia Loveless · Answer

@Sean Ross Yes the new property is going to be an investment but it is a much less expensive property which is why I didn’t believe the 1031 would be useful. I intend on offering under $50,000 for it.

Thank you for your insight.

Alecia Loveless · Answer

Sorry for the extra post. I expect the profit to be $90,000 not the capital gains tax.

Can I Offset My Capital Gains?

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