Best use of long term capital losses

[dobig]

As embarrassing as it is to admit we are sitting on around $400k of short term capital losses from the sale of a vacation home at the beginning of Covid and bad market timing in 2021. There has to be a better way to capitalize on this than taking the $3,000 deduction every year. Was thinking of rolling over 401k to Roth ($530k balance) but not sure if it would be better to do that when we hopefully retire in 2027. It's not fun admitting our losers but if anyone has suggestions on how they best made use of capital losses we'd appreciate hearing about it.


Edited to show losses were short term rather than long term.

 

[copyright1997reloaded]

As embarrassing as it is to admit we are sitting on around $400k of short term capital losses from the sale of a vacation home at the beginning of Covid and bad market timing in 2021. There has to be a better way to capitalize on this than taking the $3,000 deduction every year. Was thinking of rolling over 401k to Roth ($530k balance) but not sure if it would be better to do that when we hopefully retire in 2027. It's not fun admitting our losers but if anyone has suggestions on how they best made use of capital losses we'd appreciate hearing about it.


Edited to show losses were short term rather than long term.

The best use is to offset short term gains. Sell anything you have that is not tax advantaged (i.e. not in a tIRA or ROTH) that has a gain, buy it back the same day (ETA to establish a new higher go-forward cost basis). (There is no "wash sale" issue on gains.)

 

[COcheesehead]

Can you even take a capital loss on a vacation home? I didn’t think you could.

As far applying to a rollover, the tax on the rollover would be considered income and taxed as such. Capital losses need to be applied to capital gains with excess applied up to $3000 in current year income and the balance carries over.

 

[pb4uski]

I don't think so either.

A second home, or a timeshare, used as a vacation home is a personal use capital asset. A gain on the sale is reportable income, but a loss is NOT deductible.

Perhaps it is equity losses partially offset by a gain on the sale of the vacation home.

That and beyond the initial year, once carried over I wouldn't think whether is is short-term or long-term matters.

Best way is to offset against capital gains, but moving 401k money to a Roth is going to create ordinary income rather than capital gains so that's a really bad idea.

 

[madatrub]

As embarrassing as it is to admit we are sitting on around $400k of short term capital losses from the sale of a vacation home at the beginning of Covid and bad market timing in 2021. There has to be a better way to capitalize on this than taking the $3,000 deduction every year. Was thinking of rolling over 401k to Roth ($530k balance) but not sure if it would be better to do that when we hopefully retire in 2027. It's not fun admitting our losers but if anyone has suggestions on how they best made use of capital losses we'd appreciate hearing about it.


Edited to show losses were short term rather than long term.

You're not alone. Im in a similar boat. Here's how I plan on using it:

* Sell a rental home upon retirement (~5 years out), any capital gain will be offset by the capital loss.
* Retire shortly thereafter
* Live off of After Tax accounts in early retirement, using capital loss to offset any capital gains that year, and using $3000 each year to offset ordinary income (interest and dividends)
* The above will (hopefully) drive my total income to near $0, I'll then do a ROTH conversion (from 401k). The amount will be chosen to optimize my ACA subsidies and drive my silver plan costs to near 0. (~$30k per year?)
* Rinse and repeat every year until Im either out of capital loss carryfoward or I hit 65.