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Can I offset capital gains from the sale of my house with capital loss from the sale of stocks?

I am getting divorced and we are selling our primary residence. After the $500,000 exemption, I estimate we will have to pay tax on about $300,000 worth of capital gains from the sale. However, I am carrying forward approximately $400,000 in losses from trading stocks (a combination of short- and long-term losses). Can I use those losses to cancel out the taxable gains on the sale of the house?

Real Estate, Stocks, Taxes
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November 2017


Let me start with some good news first.  Generally speaking, you can offset your home sale capital gains with your other investment loss since the gains reported on Schedule D, Capital Gains and Losses, which is also the place where your other investment capital loss carryover shown.

Obviously, you understood the $500k exemption, but in order to use it correctly you must be married at the time and satisfy the ownership and use tests, which is you have owned and used your home as your main residence for at least two years out of the five-year period ending on the date of the sale. Based on your question, I think you know you qualify for the second requirement.  However, it’s the first requirement, “married”, that can potentially cost you if you’re not careful.

Since your question states, “I’m getting divorced”, I assume the divorce is not finalized.  As long as you haven’t signed the final divorce decree by 12/31/17, your filing status for the year should be “MFJ”.  Any other statuses will prevent you from using the $500k exemption.  

Lastly, here are a few more tips for you to calculate the capital gain.  You can deduct all of your selling expenses, such as commissions, ads, legal fees and any seller-paid expenses from the selling price of the home to get to the so-called “amount realized” on the sale. Then, you need to find out your “adjusted basis” of the home, which is your original cost of the home increased by any capital improvements you made while you own the home. Now, with those two pieces of information, you should calculate your capital gain with confidence.  Moreover, you may want to look up IRS Publication 523 entitled “Selling Your Home” to learn more details on claiming exclusions from your gain.   Best!

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