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RE Loss & Roth Conversion
Old 06-23-2013, 05:52 AM   #1
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RE Loss & Roth Conversion

I know this is not a tax forum, but many out here are more tax versed than I.

I will retire next year, I also will sell a rental property which I will realize a $200K loss. I have taken depreciation, which will reduce loss amount.

My question, can I offset taxes on a conversion to a Roth with this RE loss.

Thanks and Have a Wonderful Sunday !!!
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Old 06-23-2013, 06:24 AM   #2
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You are limited to $3000 per year loss against ordinary income, and I assume the Roth conversion is treated as ordinary income. You can use the loss against any other realized gains through the year whether short term or long term, and any loss not used is carried forward to future years.
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Old 06-23-2013, 10:34 AM   #3
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So number one, I might live long enough to use all my compiled losses Ha Ha,

I could use the $3K per year, and pay the taxes on anything over that which convert to a Roth.
20 years, $60K. I am looking to convey the principle with minimal tax impact.

Thank You !!
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Old 06-23-2013, 11:28 AM   #4
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You can use the loss against any other realized gains through the year whether short term or long term, and any loss not used is carried forward to future years.
Is there a time limit to how long you can keep doing this, or can you keep doing it until all the losses have been used against gains?
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Old 06-23-2013, 11:40 AM   #5
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Is there a time limit to how long you can keep doing this, or can you keep doing it until all the losses have been used against gains?
I don't think there is a time limit. At least I haven't become aware of one and I'm planning on slowly using the zillions of bux of losses I took in 2008 to offset income at $3k/yr for many years.
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Old 06-23-2013, 11:43 AM   #6
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So number one, I might live long enough to use all my compiled losses Ha Ha,

I could use the $3K per year, and pay the taxes on anything over that which convert to a Roth.
20 years, $60K. I am looking to convey the principle with minimal tax impact.

Thank You !!
This implies your investments are such that you'll have no other cap gains such as an equity MF throwing off cap gains. Is that correct?
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Old 06-23-2013, 01:04 PM   #7
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This $3000 limit of capital loss deductible against ordinary income was begun in 1978. I do not remember what was the rule prior to this.

What do you think the real value of this $3000 is worth today?
Quote:
Your US Dollar Conversion:
Sunday, 23 June 2013
The deflator index for 2013 is 116.437 and for 1978 it is 40.435 (US Dollar Implicit Price Deflators for Gross Domestic Product 1929-2013, 2005=100, BEA). It follows that, with numbers rounded to two decimals:
3,000.00 US Dollars of 2013 are worth 1,041.81 US Dollars of 1978.
Converter of current to real US dollars | using the GDP deflator

It may be that some of the huge capital losses that people have experienced over the past decade and a half will very likely be carried into the grave, and there lost. Might be an area of estate planning for married people, especially those with young spouses.

Ha
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Old 06-23-2013, 01:36 PM   #8
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To answer the OP's question, no, not beyond $3000 worth.

The loss can be used up in other ways, however. If spouses each have assets titled in their own separate names, those assets can be swapped without triggering a step up (or down) in cost basis. Consequently, if one spouse is carrying a capital loss, he or she can swap it for a gain before death. The asset with the gain can 1) be sold to consume a loss that has been carried forward, or 2) will receive a non-taxable step-up in basis upon death.
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Old 06-23-2013, 03:54 PM   #9
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Originally Posted by Cessna5354 View Post
So number one, I might live long enough to use all my compiled losses Ha Ha,

I could use the $3K per year, and pay the taxes on anything over that which convert to a Roth.
20 years, $60K. I am looking to convey the principle with minimal tax impact.

Thank You !!
Do you never have any realized capital gains or capital gains distributions from a fund?
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Old 06-23-2013, 04:16 PM   #10
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I have been researching this subject for some time, I am pretty sure selling a rental propery at a loss has no limit. I will give this info as starting point for your own research.

" Section 1231" loss. This is the best kind of loss you can have because you can deduct it against any and all types of income (salary, interest, dividends, capital gains, alimony received, self-employment income, whatever".

IRS Publication 544, Disposition of Assets, describes in detail the proper way to determine and report the sale of an asset such as a rental property. See Pages 28-38.
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Old 06-23-2013, 04:50 PM   #11
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perrytime.......thanks for posting that.....learned something today.
Hard to believe......best of both worlds .....if a gain, capital gain at favorable tax rates; if a loss, ordinary loss w/ no 3K/yr limitation.
1231 property - Wikipedia, the free encyclopedia
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Old 06-24-2013, 12:10 AM   #12
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I am facing this question this year also,although the loss is fairly small about 5K and I have plenty of gains to offset it. I read the wiki recently and the IRS pub, a couple of years ago, and I am still a bit confused.

The folks at fairmark.com are some of the smartest about taxes and investment on the internet, lots of CPA and former IRS agents.

Short of finding a good CPA, I recommend posting a question on that forum.
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Old 06-24-2013, 04:41 AM   #13
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Thanks to all,

I will share the 1231 information with my CPA and will report results.

Perrytime you especially !!
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