Tax deductions for selling business & real estate at a loss - offsetting capital gains?

This is actually a bit more complicated than a straightforward offset, but there's good news here. When you sell a business, the IRS treats different parts of the sale differently. First, the business assets need to be categorized correctly (equipment, inventory, goodwill, etc.). Each category might have different tax treatments. For example, the loss on selling equipment might be treated as an ordinary loss rather than a capital loss, depending on depreciation you've taken over the years. Inventory is generally ordinary income/loss. For the real estate, that's typically a Section 1231 property if it was used for your business. Section 1231 gains are treated as capital gains, but Section 1231 losses are treated as ordinary losses, which is actually better for you tax-wise in most cases. The good news is that ordinary losses can offset any type of income, including your capital gains from stocks. So some of your business sale losses may directly offset those stock gains, depending on how everything is categorized.

I had a similar situation last year with my landscaping business. Tried to figure it out myself, but it was a nightmare with all the different categories and tax treatments. Ended up using https://taxr.ai to analyze my business sale docs and categorize everything properly. Saved me from making some serious mistakes on how I was calculating losses. The tool was super helpful in separating the property sale from the business assets and figuring out which losses could offset my other income. Their document analysis caught several things I would have missed about depreciation recapture on some equipment.

Just wanted to follow up about that taxr.ai site someone mentioned. I was super skeptical but decided to try it before meeting with my accountant since I'm also selling my business. Honestly was surprised at how thorough it was. I uploaded my purchase records from 5 years ago and my current sale contract, and it broke everything down by asset category and showed exactly how much was Section 1231 vs ordinary income/loss. Even showed me that my delivery van would trigger some depreciation recapture I hadn't considered. Ended up having a much more productive meeting with my accountant because I already understood the basics of how everything would be treated. Definitely helped me avoid some misconceptions I had about business sale losses.

Something else to consider - if you're having trouble getting answers on complex tax stuff like business sales, try using https://claimyr.com to get through to an actual IRS agent. I had been waiting on hold forever trying to get clarity on similar business sale issues, but using their service got me connected in like 20 minutes instead of the 2+ hours I was experiencing before. I just had questions about how to report everything on the right forms, and talking to a real person helped me understand what documentation I needed to keep. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c

Had to come back and admit I was completely wrong about that Claimyr service. After my frustration trying to get answers about my own business sale taxation, I decided to give it a shot thinking it would be a waste of money. Got connected to an IRS tax specialist in about 15 minutes! She explained exactly how to properly categorize my salon equipment vs. the building sale on my tax forms. Turns out I was going to file some of it completely wrong. Just wanted to set the record straight since I was so skeptical before. Definitely saved me from an amended return headache down the road.

Don't forget to look into Section 1244 stock if your business was organized as a corporation. If you qualify, you might be able to claim an ordinary loss instead of a capital loss on the stock, up to $50,000 for individuals or $100,000 for couples filing jointly. Even if the whole $140k loss doesn't qualify for favorable treatment, getting part of it treated as ordinary losses can make a big difference. My restaurant failed last year and this saved me about $12k in taxes!

Has anyone here used the installment sale method to spread out losses like this? I'm in kinda the same boat with my hardware store but I've heard you can structure the sale to spread the tax impact over multiple years?

Sofia, I'm really sorry to hear about your situation - losing a business is incredibly stressful both financially and emotionally. The good news is that you have some options that could help significantly with your tax burden. Based on what you've described, you'll likely be dealing with multiple forms and tax treatments. Your real estate loss will probably be treated under Section 1231, which means it would be an ordinary loss that can fully offset your $95k in capital gains from stocks. For the business assets, each category gets treated differently - equipment losses might be ordinary losses after accounting for any depreciation recapture, while inventory losses are typically ordinary as well. One thing to keep in mind is timing - if you're confident that these losses will provide substantial tax benefits this year (which they likely will), there may not be a strong reason to delay the closing. The ability to offset your capital gains could result in significant tax savings that might outweigh any potential benefits of spreading things across tax years. Since your accountant is unavailable, you might want to consider getting a second opinion from another tax professional before the closing, especially given the complexity and the amounts involved. This isn't the kind of situation where you want to guess - getting proper categorization of each asset could make a difference of thousands of dollars in your final tax liability.

Sofia, I completely understand the stress you're going through - business failures are tough both financially and emotionally. The silver lining here is that your losses could actually provide significant tax relief for your capital gains situation. From what you've described, you're looking at around $140k in combined losses that will likely be categorized in ways that favor you tax-wise. Your real estate loss ($75k) will probably qualify as Section 1231 property, which means it gets treated as an ordinary loss that can directly offset your $95k in stock gains. That alone could eliminate most of your capital gains tax liability. For the business assets ($63k loss), the treatment will depend on the specific items - equipment might involve some depreciation recapture calculations, but much of it will likely also qualify for ordinary loss treatment. Inventory losses are typically ordinary losses as well. Given that you have substantial capital gains this year that these losses can offset, I'd lean toward proceeding with the sale rather than delaying. The tax benefits of recognizing these losses in 2025 when you have gains to offset them could be substantial - potentially saving you $20k+ in taxes depending on your bracket. However, with amounts this large, I'd strongly recommend getting a consultation with another tax professional before closing if your regular accountant isn't available. The proper categorization and timing of these transactions could make a significant difference in your final tax outcome.