paying 0% cap gains rate on investment property because of business loss?

[gzz]

Poor me, my wholly owned s-corp business lost about 100k this year!

Can I sell my investment condo for a 130k profit, have an AGI that is near 0, and therefore qualify for the 0% capital gains rate for single individuals with AGI’s under 37k?

I think this is the case, my 2017 AGI will indeed be about -$100,000 without the capital gain, but can’t find anything firm.

I have to act fast, I don’t expect the S-Corp to be unprofitable in 2018.

https://www.bankrate.com/finance/taxes/capital-gains-tax-rates-1.aspx

https://www.nerdwallet.com/ask/question/do-capital-gains-affect-tax-bracket-26135

[ucodegen]

From recollection, AGI includes Capital Gains. That means it also depends upon how much in gains you get on what your bracket is.

Another question is whether you depreciated your condo because that depreciation gets recaptured on the sale. The depreciation effectively drops your cost basis on the condo so the recapture is taxed at capital gains rates.

[SK in CV]

[quote=ucodegen]From recollection, AGI includes Capital Gains. That means it also depends upon how much in gains you get on what your bracket is.

Another question is whether you depreciated your condo because that depreciation gets recaptured on the sale. The depreciation effectively drops your cost basis on the condo so the recapture is taxed at capital gains rates.[/quote]

I have no idea what his question means, but if the condo was rented, depreciation is recaptured whether it was taken or not. Depreciation isn’t a choice.

[gzz]

I just realized I can also take advantage of my temporally negative income and tax bracket to sell my appreciated stocks. I have a few I have been wanting to sell, but avoiding doing so because of capital gains. This seems to be a better option than losing trying to rush out a cash condo sale before 12-31. (When you own beach properties, you get unsolicited offers to sell them all the time. Usually low balls, but in my case one of them was from a friend and pretty reasonable.)

The nice thing is after 3 months, I can buy the stocks back if I want to and have a new, higher basis if I desire to sell them again.

My final issue to research is, should I worry that using my S-Corp losses to avoid a 15% long term capital gains taxes will reduce my tax loss carryforward that could be worth more than 30% by reducing my income taxes.

[SK in CV]

I don’t really understand what your last question means, but the wash-sale rules is 30 days, not 3 months.

[gzz]

Thanks for the correction on wash sales.

The question is, my k-1 profit statement from my S-corp might say when I issue it, -$120,000. Absent anything else, I can carry that amount back or forward to reduce my ordinary income that I pay a marginal rate of 30% or whatever, saving me about $36,000 in taxes (.3*120k).

If, however, I take a $120,000 capital gain this year, and pay no tax on it because my AGI is 0 and the cap gains rate for single people with AGI of less than $39,000 is 0%. So I save $18,000 on capital gains taxes.

The question is, do I lose the ordinary income carryback/carryforward worth $36,000 because my 2017 reported AGI is 0, not -$120,000?

That seems kind of illogical since the rule for capital losses is that only $3,000 against ordinary income per year. But I want to use my ordinary losses against ordinary income, not same-year capital gains.

My hope is that my bad year for my S-Corp day job will let me do both, avoid about $18,000 in capital gains taxes by having a low income, but also avoid $36,000 in taxes on ordinary income from loss carryback and forward.

I am kind of worried about doing a carryback since that would involve me not paying less taxes, but asking the government to give me back taxes I paid in the past. I’d also need to refile tax returns. It seems safe and easier to just carry forward. Looks like I don’t have to decide until I do my 2018 taxes, though the carryback option is attractive in allowing me to get a bunch of money early in 2018.

[SK in CV]

[quote=gzz]
The question is, do I lose the ordinary income carryback/carryforward worth $36,000 because my 2017 reported AGI is 0, not -$120,000?

[/quote]

Yes, you would probably lose most of the NOL if you have cap gains to offset it.

The loss from the S-corp may not be deductible if you don’t have basis. If the loss was with borrowed money, unless it was borrowed from you, the loss may not be deductible. It doesn’t work the same with S-Corps as it does with entities taxable as partnerships.

[plm]

Been thinking about my mortgage interest deduction more and the AMT is still in the new tax plan so if you still have to pay the AMT even with the higher exemptions, then mortgage interest is still useful for AMT calculations. So I shouldn’t do anything because I could still be paying AMT.

If I do pay AMT next year, then I truly did get a tax cut since the AMT exemptions and phaseout was increased. And all this arguing about SALT for California was meaningless.

[gzz]

SK, thanks for the info on S-Corp losses.

I made a decision now:

1. Don’t sell condo this year

2. Sell about 100k worth of my most highly appreciated stocks, save about 10K in capital gains. Possibly buy them back with a new higher basis if they end up cheaper in 31 days.

3. My S-Corp losses were covered by me writing checks to it. I don’t see why I have to characterize them as loans or capital contributions right now. But the whole restate prior year returns sounds so complicated, I think I will just likely call them loans, and when I make money in 2018, repay them to me tax free. So the loss in 2017 will end up reducing 2018 ordinary income, which will now be untaxed loan repayments.

4. The new question is, how do I get my 2017 AGI below 39k to avoid capital gains taxes when I made about 60k in net rents, dividends, and capital gains? Probably my deductions will do that, but I might have to take 20k loss in the business by calling some of the checks I wrote the business capital contributions.

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