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offsetting LT gain on sale of main home with capital losses?

IRS Tax Tip 2011-35, February 18, 2011 [1] states: "4. You may deduct capital losses only on investment property, not on property held for personal use".

But IRS Pub 523 [2] example 2 (p. 24) shows that the gain eligible for exclusion (worksheet 2 line 11) and the exclusion are reported on line 8 of Sched D among all other LT cap gains and losses.

I do not see anything in Sched D [3] that prevents LT losses, allowed LT carry-over loss, and net ST loss (up to net LT gain) from offsetting the gain on the sale of the main home.

Is the "main home" considered "property held for personal use" as that term is used in the Tax Tip?

If so, can anyone reconcile my seemingly conflicting observations?

Is the LT gain from the sale of the main home offset by the losses listed above? If not, how not?

Has something changed applicable to 2011 that is not reflected yet in Pub

523 (2010)? If so, can someone point me to online information (preferrably at irs.gov) that explains the change?

----- [1] Tax Tip:

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6799,00.html [2] Pub 523:
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[3] Sched D:
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Instructions:
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Reply to
seller
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True and the instructions for Schedule D say the same thing.

Example 2 is the case where the gain on your main home is greater than the $500K exclusion, so that you are left with a reportable "Capital Gain" not a capital loss on personal use property.

Also true. Once you report your gain on the sale of your home, the other capital losses (not personal use losses) can offset it.

Yes.

I don't see a conflicting observation. The law says you can't deduct a capital loss on personal use property. In the example, there is no loss on personal use property. There is only a gain.

Yes.

Reply to
Alan

Correct. section 121 allows you to exlcude gain on your main home, but the exclusion cannot exceed gain on the home.

This is what OP missed -- you cannot claim a loss on personal use property, but under Sec 121 you can exclude up to 250,000/500,000 (or a lesser amount if required to pro rate the exclusion) of the qualified gain on your main home.

The exclusion amount does not reduce gains on other property.

Understand the difference between Sec 121 exclusion of main home gain, which applies to an offset only from main home gain, from cap losses which applies to other capital gains as well.

Not any change.

Reply to
Arthur Kamlet

[....]

Doh! LOL at myself. This is stupid case of looking for and seeing what I did not want to find. I completely misread the Tax Tip statement in ways that I cannot image even now. Thanks for pointing out my mistake.

Reply to
seller

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