I bought an unimproved vacant six acre site for residential development in 2007. Have spent hundreds of thousands on carrying costs and engineering plans and permits to get it to the point where it could be sold to a well-heeled developer. I just sold it to just such a developer but at a $400,000 loss. What can I do tax wise with the loss. Can I carry some of the loss back three years and then forward seven, or is there some limiting rule?
Regarding your sale, the tax treatment has a lot to do with the purpose of your investment.
If this was a residential lot you were developing with the intent of personal use, but later decided to sell it to a developer, you would have a personal loss on the sale.
Losses on personal property are not deductible and you would do nothing with it for tax purposes.
If you are in the business of developing lots, then you may have a business loss.
If this was a bona fide business, then you may have an operating-type of loss. That may generate an NOL (Net Operating Loss)
A true NOL will carryback 2 years and then forward 20 years.
If the land was a pure investment where there were no buildings built, you may have a capital loss.
A capital loss is limited to reducing other income by no more than $3000 per year. It cannot be carried back, but it can be carried forward for as long as you live.
A capital loss can also offset capital gains. Example: You have a $50K capital loss. In the same year, you have a $20K capital gain. The $20K gain can be offset entirely by the loss, with $30K left over. Of the $30K, $3K can be used to offset other ordinary income. In this scenario, you would use up $23K of the $50K loss and the remaining $27K carries to next year.
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