I had two investment properties (residential lots) on my personal name and both had separate mortgage. I bought the properties in May 2005, and was paying mortgages until Sept 2008. I just settled with bank paying them $70,000 and dead to both properties. My total loss including down payments, mortgage, settlement, lawyer fees etc is about $200,000 My question is how can I best use this loss for tax purpose. My income from other sources this year will be about $200,000
You claim your capital loss on Schedule D (1040). Your loss can be used to offset capital gains in your brokerage account. If you have a net capital loss on Schedule D, then you can use $3000 of your loss this year to offset your other income.
Net capital losses exceeding $3000 are carried forward to the next tax year when they are first used to offset capital gains and then up to $3000 of ordinary income.
Consult your tax advisor for specific details.
Dave,
Thanks for the quick reply, is there any way to claim more loss as I do not have any capital gains. At this rate, it will take me long long time to recover.
nope. you and everyone else right now.
At this rate, it will take me long long time to recover.
If “recover” to you means that you will eventually get $200K in tax savings for your $200K loss then you need to appreciate the effect of a capital loss on your tax liability.
If you are in the 25% tax bracket, then a taxable capital loss of $200K will translate to a $50K reduction in your tax bill. Since you can only use $3000 of net capital loss per year against your other ordinary income, it will take you sixty-seven years to claim the entire $200K capital loss. When all is said and done, you will have recovered only $50K of your loss through reductions in your income tax bill assuming you stay in the 25% tax bracket the entire time.
The news could get worse. Let’s say you don’t live long enough to claim the entire $200K loss. The tax return your estate executor will file for you for the year of your death can only take a $3000 net capital loss against ordinary income. Whatever losses you have left over after your final tax return are lost forever.