Washing Cap Gains/Losses

My net ordinary income for 2004 from my job was $18,000. I am carrying over $40,000 in cap losses from the NASDAQ bubble burst. The losses were from technology stocks (Microsoft, Yahoo, etc). In Jan 2004 I purchased two residential homes and rented them out to tenants. I sold the homes in Aug 2004. My net realized gain on the sale of both homes was $50,000. I want to know if the sale of these two homes is considered a short term capital gain (taxed at ordinary income rate) and if so, may I use the long term cap loss from the securities to offset the short term cap gain on the sale of investment/rental real property? Basically, is real property used for rental/investment considered a cap asset and can you wash SHORT term gains with LONG term losses? I read the IRS web site and it seems to say real property investments are not capital assets.

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johnmolinda
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