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?
Yes. So you first get the $500k exemption, then the leftover gain can be offset by capital losses. You would first offset the long term capital losses, then if still a gain, use the short term capital losses. If still a gain, you would pay your appropriate capital gains tax rate.
Hope this helps and best of luck, Dan Stewart CFA®
If the home is jointly held you may use the losses in your stock portfolio to offset the gain, provided that you are married at the time of the sale. If you sell after the divorce, and each own half the home, then you would each have $250K in the exemption and the losses may or may not be transportable. If you are in community property state I would suggest that you discuss this with an Enrolled Agent or CPA and or lawyer to determine the consequences.
Hello – thank you for writing. The other advisors make good points, and you are all set for your plan, but I wanted to remind you and our readers that for personal 1040 taxes, the additional loss a taxpayer can deduct after netting cap gains is limited to $3,000 per year for married filing jointly (MFJ) ($1,500 for single filers). As the IRS explains in the Instructions for Schedule D: “You can deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately).” Sometimes people forget this rule, and it can make for an unpleasant tax experience when that happens.
In your case, using the round numbers you’ve given and assuming you are still not divorced when the home sells, you can file as MFJ and take the $500K exemption and have a cap gain from the house sale of $300K. You’ll use $300K of the trading losses to offset that gain. Then in future years you will continue to carry over the remainder of the loss of $100K for as many years as you need to until you use it up offsetting other gains. Once you are divorced and filing as a single filer, you’ll be limited to using an additional carry over of $1,500 each year rather than the $3,000 when you were married. The carry over amount is entered on loss Schedule D (on line 14 in 2016 tax forms).
Another important reminder is that losses from the sale of a home that is a personal residence can’t be used to offset stock market gains in your personal taxes. Of late, with the housing market doing so well, a loss in a home sale isn’t as frequent, but in the past when you took a loss on the sale of your home, it really hurt that the loss was not deductible.
Best wishes to you and please write back to us if we can offer more advice.
Yes, you can!
You may utilize your capital loss carryover as a deduction against the capital gain on the sale of your home. So long as you continue to track your carryover losses, regardless of being short term or long term, you can offset capital gains, such as this, in future years.
It sounds like you may also qualify to exclude up to $250,000 ($500,000 if you file a joint return) from taxation by using the applicable IRS Section 121 exemption. Generally, you qualify if you meet both the ownership and use tests. The requirement is that you must have owned and used this home as your main residence for at least two years out of the previous five-year period as of the date of the sale. Discuss this with your accountant as it relates to filing your taxes after the divorce and how that may impact your ability to utilize all or some of this exemption.