capital gains vs losses...

SkyHog

SkyHog

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Anyone know the reasoning why I would be subject to additional capital gains taxes for a sale on a home within 2 years of purchase but not gain from a deduction for a capital loss for the same?

Seems kinda skewed...
 
The gov't gots to gets their monay.
 
The law basically states that you can exclude up to $250,000 on a personal residence if single (this is based if you are filing as single-different exclusion if MFJ):

1. Owned home 2 out of previous 5 years (I think this one probably gotcha)
2. Used it as a principle residence 2 out of past 5 years
3. Did not exclude gain from sale of another home during the 2 years prior to sale

There can be a reduced maximum exclusion subject to certain circumstances.

You can't take a capital loss on property not used for business or investment purposes.

Contact your tax adviser for specific information. Do not use this posting as tax advice.
 
asgcpa said:
The law basically states that you can exclude up to $250,000 on a personal residence if single (this is based if you are filing as single-different exclusion if MFJ):

1. Owned home 2 out of previous 5 years (I think this one probably gotcha)
2. Used it as a principle residence 2 out of past 5 years
3. Did not exclude gain from sale of another home during the 2 years prior to sale

There can be a reduced maximum exclusion subject to certain circumstances.

You can't take a capital loss on property not used for business or investment purposes.

Contact your tax adviser for specific information. Do not use this posting as tax advice.
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You're missing the point - if I buy a house for 200,000, then sell it a year later for 225,000, I am taxed on 25,000 worth of capital gains.

If I buy a house for 200,000, then sell it a year later for 180,000, I get absolutely nothing in capital losses.

Do I understand that correctly?
 
I think CPA captured your point pretty well. Unless the property is an investment or business property, any loss you take is your own.
 
MarkZ said:
I think CPA captured your point pretty well. Unless the property is an investment or business property, any loss you take is your own.
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I get that - but why are losses mine, but gains are taxable?
 
SkyHog said:
I get that - but why are losses mine, but gains are taxable?
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Nothing about the tax law or the IRS makes much sense. Don't even try to understand the why. The why is complicated and full of politics and BS that you can't influence.
 
Happened to us once, 50% loss. Went to a tax lawyer before I would believe it.
 
Jimmy cooper said:
As someone mentioned, you need a financial advisor instead of Internet "experts".
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He doesn't want to know WHAT the tax law is, he wants to know WHY it is. That would be a question for a political expert or a history expert, not a financial expert.
 
Because you aren't a professional investor, therefore you aren't worth consideration for anything except what money can be sucked out of you.
 
I think post #2 answered his question perfectly.

To expand on it a little, other things being equal, when there is a tax law decision to be made, politicians prefer rules that increase revenue over rules that decrease revenue.
 
The purpose of the gain exclusion was to help people that live in their homes for many years and have gains due to normal inflation, the two year rule kept people that flip houses for a living from benefiting from it.
 
Palmpilot said:
I think post #2 answered his question perfectly.

To expand on it a little, other things being equal, when there is a tax law decision to be made, politicians prefer rules that increase revenue over rules that decrease revenue.
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Unless you are rich enough to get them elected.
 
Because you get the benefit of living in the property for two years rent-free. Yes, you get to pay the mortgage, and enjoy the deductibility of taxes and interest. Investors can't live in an investment property as their primary residence, and have to either pay a mortgage or rent for a place to live. Investment interest is deductible, but financing is structured very differently, and commercial loan is much more expensive.
 
Chip Sylverne said:
Because you get the benefit of living in the property for two years rent-free. Yes, you get to pay the mortgage, and enjoy the deductibility of taxes and interest. Investors can't live in an investment property as their primary residence, and have to either pay a mortgage or rent for a place to live. Investment interest is deductible, but financing is structured very differently, and commercial loan is much more expensive.
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Unless of course they own free and clear and don't have to take out a loan for the investment property.
 
EdFred said:
Unless of course they own free and clear and don't have to take out a loan for the investment property.
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The owner of the investment property would still have to forego the benefit of residence in the property to claim it as an investment. Even if the primary residence is free and clear, you can't live in two places at once. And iirc, the capital loss is limited to $3k per in a tax year, the balance carried forward.
 
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SkyHog said:
You're missing the point - if I buy a house for 200,000, then sell it a year later for 225,000, I am taxed on 25,000 worth of capital gains.

If I buy a house for 200,000, then sell it a year later for 180,000, I get absolutely nothing in capital losses.

Do I understand that correctly?
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Yes you do pay tax on the 25K capital gains and you cannot take the loss if it a personal residence.
 
SkyHog said:
I get that - but why are losses mine, but gains are taxable?
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Because that is the tax law. Don't like it? Send a teabag to your senators and congressmen/women. Don't shoot the messenger.
 
Chip Sylverne said:
Because you get the benefit of living in the property for two years rent-free. Yes, you get to pay the mortgage, and enjoy the deductibility of taxes and interest. Investors can't live in an investment property as their primary residence, and have to either pay a mortgage or rent for a place to live. Investment interest is deductible, but financing is structured very differently, and commercial loan is much more expensive.
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So here is a consideration as to how to potentially make big $$ tax free. Assuming you are single, buy a run down house for peanuts. Live in it (yes I know that would be a bummer) as your principle residence for at least 2 years as you fix it up (subject to my comments in post #3). Any gain up to $250,000 (i.e. $250,000 profit) you have when you sell it over the initial purchase price and cost of improvements would be tax free. Again, don't take this posting as tax advice - consult your own tax advisor.

Just a thought.
 
asgcpa said:
So here is a consideration as to how to potentially make big $$ tax free. Assuming you are single, buy a run down house for peanuts. Live in it (yes I know that would be a bummer) as your principle residence for at least 2 years as you fix it up (subject to my comments in post #3). Any gain up to $250,000 (i.e. $250,000 profit) you have when you sell it over the initial purchase price and cost of improvements would be tax free. Again, don't take this posting as tax advice - consult your own tax advisor.

Just a thought.
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You wouldn't have to live in it. You just have to claim it as your residence and have it as your legal address. My legal residence was my current place 14 years ago but I never slept in it for the first 9 months. I did pay the taxes on it and take the property tax and interest deductions though.
 
Palmpilot said:
I think post #2 answered his question perfectly.

To expand on it a little, other things being equal, when there is a tax law decision to be made, politicians prefer rules that increase revenue over rules that decrease revenue.
Click to expand...
Which is the reason why we cannot deduct creditcard interest paid BUT have to include every nickle of the piddly little interest from saving accounts but not deduct the costs associated with said accounts but include any rebate we get from state taxes as INCOME!
It's a racket and we're not on the right side.
And I am old enough to remember when 6% interest was considered a "normal" savings account and deducting credit card interest from taxes was allowed. I'm waiting for the SOBs to remove the mortgage interest deduction from taxes. We know they are not making enough money YET!
 
silver-eagle said:
Which is the reason why we cannot deduct creditcard interest paid BUT have to include every nickle of the piddly little interest from saving accounts but not deduct the costs associated with said accounts but include any rebate we get from state taxes as INCOME!
It's a racket and we're not on the right side.
And I am old enough to remember when 6% interest was considered a "normal" savings account and deducting credit card interest from taxes was allowed. I'm waiting for the SOBs to remove the mortgage interest deduction from taxes. We know they are not making enough money YET!
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Although it was before my time in the profession, I believe a lot of the changes came in the 1986 Act when Reagan was the President.
 
asgcpa said:
Although it was before my time in the profession, I believe a lot of the changes came in the 1986 Act when Reagan was the President.
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That is correct. Unfortunately, I was a CPA when the Tax a Reform Act of 1986 became law. That was an interesting year. :sigh:
 
nddons said:
That is correct. Unfortunately, I was a CPA when the Tax a Reform Act of 1986 became law. That was an interesting year. :sigh:
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Ahh yes, the Golden Age of Voodoo Economics based on the Trickle Down Theory which opened the gates to the New Gilded Age in which we live. Lets just keep on creating more tax deductions for the rich and adding more taxes to the poor. My favorite part of this is the same people who complain about the taxation situation also support these tax cuts, because they live in America and the American Dream is that anyone can become rich. We're just a couple of bubbles and crashes from having all the wealth back with a few families.
 
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silver-eagle said:
Which is the reason why we cannot deduct creditcard interest paid BUT have to include every nickle of the piddly little interest from saving accounts but not deduct the costs associated with said accounts but include any rebate we get from state taxes as INCOME!
It's a racket and we're not on the right side.
And I am old enough to remember when 6% interest was considered a "normal" savings account and deducting credit card interest from taxes was allowed. I'm waiting for the SOBs to remove the mortgage interest deduction from taxes. We know they are not making enough money YET!
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It's not about them making money. They're paid from deficit spending no matter how much "revenue" they bring in.

Taxation is simply about control at this point. The input money and outflow money aren't attached to each other in any way.
 
Nick:

1. It's because the government wants the money. See Nate's post. immediately above.

2. You may be entitled to relief because your sale was the result of a change in employment and related large move (distance).

Ask a tax professional. Really.
 
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