Tax Question: Chapter 13 and Capital Loss Carryover from Stocks....Anyone Know?

[bobby125]

If anyone knows the answer to this, I would love to hear from you....


If you have a loss of $30,000 from stocks in one year, (assuming you do not make any trades from that year on) you can claim a capital loss of $3,000 for the year and carry over the balance ($27,000) to the next year, and do the same thing the following year, and so on, and so on, etc.

So you would have 10 years of $3,000 capital loss deductions...

Or if you had a rental property and sold it for a gain of $20,000, you could apply those capital gain loses from the stocks to the capital gains from the rental profit and therby not have to pay the tax on the gain

Now, here is the question:

If you are in a BK 13 and are paying back, lets say $20,000 of $100,000...

A. Can you still claim that capital loss carryover of $3,000 each year? During the BK? Or do you have to wait until the BK is over?

B. Same with the rental, obviously you would not sell the rental during the BK, because it would be seized by the creditors, but if you sold it after the BK was completed, could you apply the capital loss carryover to offset the gain?


**I know I can ask an attorney, but I wanted to see if anyone knew the answer to this**

Thanks

[lrprn]

You're describing a seldom-seen, complicated combination of circumstances, Bobby. Not being a tax/capital gains/property/bk lawyer ("I just slept at a Holiday Inn last night"....hehe! ), I regret I don't have an answer for you.

After thinking about the situations you described, now I'm curious - are stocks considered a secured or non-secured asset for bk? And can the trustee liquidate a stock asset to pay creditors?

[bobby125]

I did get the answer from my tax attorney.

I dont own any stocks, but I did lose about $40,000 which helped contribute to my BK filing

Here is what I got:

Yes you can still carry over the $3,000 each year, you dont lose that, and you can apply it towards a capital gain down the road.

So lets say I lost $45,000 and I take the maximum $3,000 each year on the capital gain lose, so now after 5 years you would have $30,000 carried over. If you had a rental property and sold it, for say a gain of $30,000 you could then apply that towards that gain.

The benefit is that you would not have to pay capital gains tax on that rental property profit (I think 20%) so you would save $6,000 on that

Anyways, all just FYI if you have any stock loses that contributed to your BK

If you have stock outside of a 401k or Roth, I would think you would have to loquidate it before filing...but I am not sure

[aa06a47]

I did get the answer from my tax attorney.

I dont own any stocks, but I did lose about $40,000 which helped contribute to my BK filing

Here is what I got:

Yes you can still carry over the $3,000 each year, you dont lose that, and you can apply it towards a capital gain down the road.

So lets say I lost $45,000 and I take the maximum $3,000 each year on the capital gain lose, so now after 5 years you would have $30,000 carried over. If you had a rental property and sold it, for say a gain of $30,000 you could then apply that towards that gain.

The benefit is that you would not have to pay capital gains tax on that rental property profit (I think 20%) so you would save $6,000 on that

Anyways, all just FYI if you have any stock loses that contributed to your BK

If you have stock outside of a 401k or Roth, I would think you would have to loquidate it before filing...but I am not sure

I regret to inform you that your tax attorney is wrong. Carry over losses are eliminated for you at least up to the amount of forgiven debt. The link below gives specifics. I have had to do research on this before as I have similiar carry over losses for stocks. What I'm not sure about is since I'm chapter 13, do I carry over the losses until I get the dismissal (in 5 years) or for the coming tax year.

http://www.irs.gov/pub/irs-pdf/p908.pdf

[bobby125]

aa, I am checking back in with my attorney

maybe you can not claim the $3,000 each year of the BK but can afterwards?

I did not have time to look through the link, but will do so tommorrow.

So you are saying that you cant carry over the capital loses if they are less than the debt forgiven, which in may case they are?

Hmmmmm.....so if they forgive me $80,000 and I lost $40,000 than I can no longer claim the $3,000? or apply it towards the gain on the rental property? even if I sell the property after the BK is over? I know I will net over $40k on the property when I sell it after BK is completed, that is where I really need to apply those loses too, because otherwise I will get hit with the 20% capital gains on the profit. I am not so much concerned with the $3,000 deduction from year to year

I will let you know what I find out

Thanks

Let me know

[aa06a47]

The way I understand it, if you have 50K in carry over losses, and file BK and get 25K of debt forgiven, you will only be allowed to carry forward the 25k (50-25). If you have 100K of forgiven debt with the 50K carry over losses, you would lose the entire carry over loss.

What hacks me off about that, the government is making money off our bankruptcy's and the creditors are not getting any of that amount.

[bkbiker]

Well guys,

While in chapter 13 our debts are not yet discharged, we still owe them, so this should not apply until the year of discharge.

I have been taking my $3000 deduction the last five years, I guess I will need find out if this applies to me; from reading this it sure looks that way, maybe that is why the IRS is always on the list of creditors!

Take care,
bkbiker

[bkbiker]

Following up on this issue; well at least our house we own and live is exempt as per bankruptcy code 522 (2) for a moment there I thought the IRS would make us pay taxes on the sale profit of my home.

It looks like it is a one time deal the very year we our granted a discharge of debt and does not carry over into any additional year.

So if you own rental property and waited until the year after discharge, this issue should than be moot.

Well, their goes my write off, in a way I do see the logic in this, me not being able to benefit twice from the same debt.

Take care,
bkbiker

[aa06a47]

yeah bkbiker, I plan on taking the 3k per year until the official discharge of debt. I don't really see the logic in it though. If they would just let us take the entire write off in one year, the creditors would at least get something. Now, Uncle Sam is getting the benifits of getting paid taxes when we make money, and not allowing a deduction when we lost money.