Using carryover capital loss on real estate gains (less than 1 year ownership)

[dcdp68]

I entered the 2023 tax season with the following carryovers.

-Short-Term Capital Loss: $15,000

-Long-Term Capital Loss: $10,000

In years past I have claimed the $3,000 loss to my ordinary income out of these losses.

During 2023 I sold two pieces of real estate.

Property 1:
-Owned 2 Months
-Net Gain $25,000

Property 2:
-Owned 10 Months
-Net Gain $44,000


1. Is it correct that neither of the carry-over capital losses can be used to offset the real estate gains because all real estate gains held for less than 1 year are treated as ordinary income?

2. If the properties were sold after owning them for 13 months could I have used both the Short & Long term carry-over capital losses?

 

[Taxing Matters]

1. No. Short term capital gains are still capital gains. But short term capital gains are taxed at the same rate as ordinary income. You follow the same process each year, adding in your carried over losses. You first offset the short-term losses against short-term gains and long term losses against long term capital gains. Then you you take those two figures and combine them for your total gain or loss during the year. See IRS Schedule D and the related instructions which takes you step by step through the computations. With your figures you'll end up with a short term capital gain, which is taxed as ordinary income. Which leads us to question 2: had you held both properties for more than one year that gain would be a long term capital gain taxed at the more favorable long term capital gains rates.

 

[kimcara94]

If you sold the properties after 13 months of ownership, the proceeds would be considered long-term capital gains. In this case, you may have used both short-term and long-term carry-over capital losses to offset your long-term capital gains, subject to the tax laws.