Can real estate gains offset short-term stock losses?

Question

I had significant losses from the stock market from stupidly selling at the wrong time. Most were held less than a year.

This year I am selling an investment property. I’m trying to decide whether or not to do a 1031 exchange.

Would I be allowed to use the capital gains from the property sale against the stock market losses? My wife is a real estate professional.

Thank you all!

Jasper Cooper · Answer

Account Closed

@Patrick Drury

Thanks both of you. My accountant says that (to his knowledge) since my wife is a real estate professional, the gains from the sale would count as ordinary income and therefore could not be used to offset stock trading losses.

I guess I'm looking for either a more-knowledgeable accountant, or a work-around. This is enough money involved that it would be worth switching accountants to one who knows how to do this.

Account Closed · Answer

In the United States, capital gains and losses from the sale of investments are typically reported on Schedule D of your tax return. The IRS generally allows you to offset capital gains with capital losses, and if your losses exceed your gains, you can use the remaining losses to offset other income, up to certain limits.

Regarding your investment property sale and the potential 1031 exchange, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds into a like-kind property. The gains from the sale are essentially rolled over into the new property.

If you decide not to do a 1031 exchange and instead recognize the capital gains from the sale of your investment property, you can generally use any capital losses from your stock market transactions to offset those gains.

The fact that your wife is a real estate professional may have implications for the treatment of passive losses and gains. Real estate professionals have different tax rules compared to those who are not actively involved in real estate.

Again, it's crucial to seek advice from a tax professional who can analyze your specific situation and provide guidance based on the most current tax regulations. Tax laws can change, and individual circumstances vary, so professional advice is essential for making informed decisions.

Patrick Drury · Answer

@Jasper CooperYou should just talk to a tax professional. The last thing you want to do is make a decision based on advice from someone who is not a tax professional.

Michael Plaks · Answer

Sounds like you certainly need to upgrade your accountant if you quoted him correctly. Real Estate Professional status does NOT change your gains to ordinary gains. And, since this statement of his (if he actually said this) does not instill confidence, I'm not even sure your wife IS a real estate professional.

And feasibility of a 1031 exchange must be evaluated by an accountant proficient in real estate taxation. Either way, you certainly need to talk to a real estate specialist, not a general practice CPA. And there're 20+ of us on this forum, so you have plenty of choices.

Can real estate gains offset short-term stock losses?

Can real estate gains offset short-term stock losses?

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