Ask the tax adviser
Offsetting property gains with stock losses
Dear Tax Talk:
I sold a rental property and believe the result is a profit
after adding back the depreciation deduction on earlier years. Can
I use the loss on the stock that I traded for the gain on selling
the rental property?
If the rental property was depreciated
after 1986, the gain on the property, including the recapture of
depreciation, will be considered capital gain. However, for purposes
of filling out the tax forms, the gain on the rental property is
considered a Section 1231 gain, which simply put is another term
for capital gain.
Gain on the sale of property
that was first depreciated under the rules that applied prior to
1987 may not all be a section 1231 gain. If this applies to the
property then you'll need to read the Form 4797 instruction as it
relates to either section 1245 property in the case of nonresidential
real estate or section 1250 property in the case of residential
The sale of a rental property
at a gain is reported on page 2, part 3 of IRS
Form 4797. When you work out your gain on the form, you
should end up with a net gain on line 7 of part 1 on page 1.
This gain is considered a long-term capital gain and
is transferred to Schedule D capital gains and losses. Short-term
and long-term losses from stock trades then can offset the gain
on the rental property.
-- Posted: Jan. 3, 2002