Capital Gains/Losses  question

jessica... First of all, is your "exchange" really an exchange, or are you just taking the proceeds from a sale and reinvesting a part of those proceeds in similar property? Second, you've managed to blur the distinction between money received and the taxable income that it might represent to you. There are a couple of steps involved in figuring out how much of the "cash" you keep will be taxable income. And third, your capital gains and [carried over] capital losses will net against each other on your tax return, automatically. You want to assure yourself that the gain from the "excess" proceeds of the exchange will be taxed as a capital gain and not as something else... Look carefully at the property that you are disposing of in the exchange to determine what type of gain you'll get from it. Luck!

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Right. If it's depreciable property, some of that might be depreciation recapture.

I agree with the other posters. I would add, however, that, in any year in which you have a net capital loss, you are required to claim $3,000 of that loss; and, depending on your net imcome before exemptions, it may not be carried over to the next year. Furthermore, if any claimed loss is in a "closed year" (probably 2012-2013 or earlier), you lose the benefit of the $3,000, but it may not be carried over to the next year.

-- Arthur Rubin, AFSP, CRTP Brea, CA

I'm pretty sure that the "closed year" rule doesn't apply to capital loss carryforwards. The unused [carryforward] portion of your capital loss will carry over from year to year .. to year .. to year .. to year ...

I'm still trying to use up a capital loss that arose in 2008!!!

What I meant, is that if you forgot to claim the $3000 deduction in 2009, you can no longer claim it (closed year rule), but your current carryover can be readjusted to reflect the $3000 that should have been used in 2009.

-- Arthur Rubin, AFSP, CRTP Brea, CA

(Apologies to all for the multiple posts)

I don't think this is true. I don't have the citation, but I am almost certain that per Section 1212 and its regulations and court cases, your carryover loss must go to the next year. If you fail to use a carryover loss (I.e., you would have benefited from its use.) it is lost. For example, let us say that a taxpayer had a carryover loss from 2008 of $5000 and that there was no need to file in 2009 and that none of the carryover would have been used in 2009. Tax returns were filed in 2010 through 2015 and the carryover loss was never entered on the 1040. In order to determine how much of that loss is available for 2016, the taxpayer must recalculate 2010 through 2015. Any amount that could have been used in 2010 through 2013 is gone forever as those years are closed. 2014 can be amended if there would have been any loss left after the recalculations. Ditto for amending 2015 and filing 2016.

There is an explanation of this on page 69 of Pub 550 that conforms to my understanding of the regs and cases I have seen in the past. It works just like the way "allowed or allowable" depreciation works. The IRS assumes you took the allowable depreciation in any year even if you failed to actually claim it.