[Rick Frazier]

Hello Experts,

I’m considering selling a rental property that might result in a loss, and it has also accumulated passive losses over time. I’m wondering if I can use these losses to offset any of the following:

1. Capital gains from selling stocks, whether short-term or long-term
2. Income reported on my W2

Appreciate your insights,

[Sue Moyers]

Yes, you might be able to use the losses from selling your rental property to lower what you owe on other types of income, but there are specific rules you need to follow. It’s a good idea to talk to someone who knows a lot about taxes to make sure you do this the right way and get all the benefits you can.

When you sell stocks and make money, whether it’s a lot quickly (short-term) or over a longer time (long-term), the losses from your rental property can help lower the taxes on those profits. If your losses from the property are more than what you made from selling stocks, you might even be able to lower taxes on other income, like your salary from a job, but there are limits to this.

However, usually, the money you lose on things like rental properties can only reduce taxes on money made in similar ways, unless you spend a lot of time working with real estate. If the IRS thinks you do enough real estate work to be called a “real estate professional,” then you might be able to use your property losses to lower your taxes on your job income too. Being considered a real estate professional means you have to meet certain requirements about how much time you spend on real estate activities.

Keep in mind:

• Passive Loss Rules: These rules are tricky and set limits on how you can use losses to lower taxes. If you can’t use all your losses one year, you might be able to use them in future years.
• Being Actively Involved: If you’re really involved in your rental property, your losses might reduce taxes on other kinds of income, like your salary, according to the IRS’s rules.
• At-Risk Rules: There are also rules about how much loss you can use to lower taxes, based on how much money you’ve actually put at risk.
• Basis Adjustment: If you’ve taken deductions for losses on your property before, and then you sell it for a loss, those deductions can change the property’s basis, which affects how much loss you can claim when you sell.

In short, there’s a chance to reduce taxes with your property losses, but you’ll need to understand and follow quite a few rules. A tax expert can help you figure out the best way to do this.

[Steven Russo]

Yes.