2 There are, however, some restrictions. Internal Revenue Service. In the event remuneration exceeds the basis, the excess proceeds are reported as a gain on the sale, exchange or disposition of property. Refer to Gain/Loss = the FMV of repossessed property less the seller/creditors remaining basis in the contract (basis=accounts receivable balance less unrealized gross profit. If the policy is not sold or canceled, the ayments received would adjust the basis of the policy. Long-term capital gains rates are 0%, 15% or 20%, and married couples filing together fall into the 0% bracket for 2021 with taxable income of $80,800 or less The amount deducted for each designated beneficiary cannot exceed the annual limitation on gifts permitted by the IRC for purposes of federal estate and gift tax. That being said, capital gains rates can run as high as 20% on real estate transactions. The capital gains from the sale were $700,000. If you have capital losses elsewhere, you can offset the capital gains from the sale of the house with those losses, and up to $3,000 of those losses from other taxable income. This involves conforming to the two-in-five-year rule (you lived in it for a total of two of the past five years). However, this is no longer the case, and the proceeds of the sale can be used in any way that the seller sees fit. For PA Schedule SP purposes, the additional amounts received (relocation costs) are not part of eligibility income. Pennsylvania PIT law follows the provisions of IRC Section 1033 for property subject to involuntary conversion (destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) after September 11, 2016. There are no remaining age-related capital gains exemptions. If the home is a rental or investment property, use a 1031 exchange to roll the proceeds from the sale of that property into a like investment within 180 days. Your email address will not be published. And capital losses incurred in the tax year can be used to offset capital gains from the sale of investment properties. However, there are other capital gains exemptions that those over the age of 55 may qualify for. The IRS details which transactions are not reportable: Getting divorced or being transferred because you are military personnel can complicate a taxpayers ability to qualify for the use requirement for capital gains tax exclusions on home sales. H.R.1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018., Internal Revenue Service. Required fields are marked *. If your profits exceed the exclusion amount and you earn $44,626 to $492,300 (2023 rate), you will owe a 15% tax (based on the single filing status) on the profits. Refer to the information below on the However, if the promise to pay the future installments is secured by a note that is assignable, the taxpayer may not use the cost recovery method and must report the entire gain during the year of the sale. A taxpayer may report each transaction or use summary information from brokerage accounts or a worksheet to report any net gain or loss amounts if the stocks and bonds are listed on any major exchange. The basis in the prize is the amount the taxpayer paid for the winning ticket/chance in the PA Lottery game that awarded the prize. How to Calculate the Cost Basis of a Home, Special Situations: Divorce and Military Personnel. An owners principal residence is the real estate used as the primary location in which they live. The Taxpayer Relief Act of 1997 significantly changed the implications of home sales in a beneficial way for homeowners. It is possible that you are not required to report the sale of your home if none of the following is true: Because the IRS allows exemptions from capital gains taxes only on a principal residence, its difficult to avoid capital gains taxes on the sale of a second home without converting that home to your principal residence. If the funds are not reinvested in the same line of business, then the gains (losses) are reported on PA-40 Schedule D. NAICS is a two- through six-digit hierarchical classification system, offering five levels of detail. Beginning in tax year 2020, PA follows the rules under IRC Section 1400Z-2(c) of the Internal Revenue Code of 1986, as amended. It was sold on the installment plan with payments totaling $4,383 the first-year, of which $4,100 was principal. PA Personal Income Tax Guide -Pass Through Entities, for additional information. The Refer to PA resident- taxable. Improvements that are necessary to maintain the home with no added value, have a useful life of less than one year, or are no longer part of your home will not increase your cost basis. The cost basis in the property received is the fair market value. She elected to exclude the capital gains and, as a result, owed no taxes. Married couples enjoy a $500,000 exemption. Real Estate Marketing; Aerial Photography & Videography; 360 Panoramic Photography & Videography; pennsylvania capital gains tax on home sale. Part 2 starts with the same ratio as in the prior year of .249. Is Professional Home Staging Worth the Cost? She is a library professional, transcriptionist, editor, and fact-checker. A principal residence, in order to qualify for exclusion, must meet all of the following conditions: If a principal residence includes business or rental premises, the exemption does not apply to the portion of the property used for business or rental purposes. A loss can occur for property obtained and held for gain, profit or income but is unallowable for personal use property (tangible or intangible). There are exceptions for certain situations, such as divorce and military deployment, as well as rules for when sales must be reported. Adjustments to the cost basis can also help reduce the gain. Not everyone can take advantage of the capital gains exclusions. The sale of the policy (if canceled) uses the cost-recovery method to determine the gain/loss. You cant claim the capital gains exclusion unless youre over the age of 55. Essentially, as long as the military member occupies the home for two out of 15 years, they qualify for the capital gains exclusion (up to $250,000 for single taxpayers and up to $500,000 for married taxpayers filing jointly). Any income from these types of investments that is taxable for federal income tax purposes is taxable for Pennsylvania personal income tax purposes as interest income. The gain (loss) on any residence or portion of a residence not eligible for the exclusion is reported on PA-40 Schedule D. The gain (loss) on any residence not eligible for total or partial exclusion is reported on line 1 of Schedule D. The gain excluded from taxation for any principal residence or the partial gain excluded from taxation on any principal residence is included in eligibility income on Line 8 of PA Schedule SP. This means that your overall gain is $100,000. The sales price less any commissions paid for selling the stock would result in only a gain being reported for such transactions. Pennsylvania also has no provisions for the carryover of losses from one tax year to another year. If the funds are not reinvested then the gains are reported on PA-40 Schedule D. If the gains are reported as ordinary income on federal Form 4797, it is not necessarily reported as net profits for Pennsylvania personal income tax purposes. The homeowner must also affirm that they meet the principal residence requirement. These rates are typically much lower than the ordinary income tax rate. WebTax Rate Ranges Short-term capital gains can be taxed at a rate from 10% to 37% depending on your income tax bracket. Nonresident taxpayers are only taxed on their Pennsylvania-source income. Pennsylvania personal income tax includes a taxable gain from an involuntary conversion of property that occurs prior to September 12, 2016. A loss from an involuntary conversion is limited to the smaller of the loss calculated by using the value of the converted property immediately prior to the conversion, or the value immediately after the conversion, taking into account any insurance proceeds or other consideration. The square footage method for allocating the cost or adjusted basis may only be used if the property is all of a like kind or of equal value. The disposition occurs when the condemnation is filed with the prothonotary's office. For taxable years beginning after Dec. 31, 2004, Act 40 of July 7, 2005 provides that income from a life insurance or endowment contract or annuities such as a charitable gift annuity or an annuity contract purchased as retirement annuity that is not from an employer sponsored retirement annuity, or are not part of an employer sponsored program, are interest income. The sixth digit designates the national industry. For owners of rental properties and second homes, there is a way to reduce the tax impact. Add this amount to your taxable income. You can sell your primary residence exempt of capital gains taxes on the first $250,000 if you are single and $500,000 if married. Capital gains are the profits you make when you sell a stock, real estate or other taxable asset that increased in value while you owned it. The capital gains tax is based on that profit. The long-term capital gains tax rate is typically zero, 15 or 20 percent, depending on your tax bracket. Internal Revenue Service. Internal Revenue Service. Requires only 7 inputs into a simple Excel spreadsheet. Gains and losses from foreign currency exchange transactions are reported as Schedule D transactions for Pennsylvania personal income tax purposes. Married couples enjoy a $500,000 exemption. To get around the capital gains tax, you need to live in your primary residence at least two of the five years before you sell it. Likewise, some events and activities can increase the cost basis. If the approximate gain from the Long-term capital gains tax rates are 0%, 15%, 20%, or 28% for small business stock and collectibles, with rates applied according to income and tax-filing status. For Pennsylvania personal income tax purposes, the basis of a life insurance contract must be adjusted to remove the cost of insurance (that is, any costs related to insurance protection). If the seller/creditor experiences a gain to the extent that the FMV is greater than the basis or a loss to the extent the FMV is less than the basis. Webrespect to the calculation of gain on property acquired before June 1, 1971. The stock received would have a basis of zero so that when it is sold, the net sales price is the reportable gain. Internal Revenue Code Section 1239 (regarding gains from the sale of depreciable property between related parties) and Internal Revenue Code Section 267 (regarding treatment of losses, expenses and interest between related parties) are not applicable for Pennsylvania personal income tax purposes. The bottom line is that if you inherit property and later sell it, you pay capital gains tax based only on the value of the property as of the date of death. Homeowners often convert their vacation homes to rental properties when they are not using them. Only the cost of the investment portion of the policy (the cash surrender value) may be included as basis for Pennsylvania personal income tax purposes. If the proceeds are invested in new real property located outside of Pennsylvania, the gain is generally PA-40 Schedule D gain. According to section 45 of the Income Tax Act,1969 any profits or gains arising from the transfer of a capital asset effected in previous year will be chargeable to income-tax under the head capital gain.. This exemption is only allowable Many people who sell their home can avoid paying this tax. Internal Revenue Service. Internal Revenue Service. Upward of $80,000, the ranges depend on filing status. A specific payment is generated over the term specified in the contract. Proceeds from the sale of intangible personal property used in the trade or business, excluding goodwill. The maximum rate is 5.25 percent, and that only applies to gains above $500,000 for married couples filing jointly and $250,000 for all other taxpayers. A shareholder in a C corporation who receives a distribution other than a dividend must decrease the basis of the C corporation stock or shares, but not below zero, by any such distribution. How to Measure, What Is an Affidavit of Title? For sales of real or tangible personal property, a cash basis taxpayer has the option to either report the entire gain in the year of the sale or report the gain using the installment sales method of accounting. This includes such methods as Modified Accelerated Cost Recovery System (MACRS). Frequently Asked Questions: Gifts & Inheritances., Internal Revenue Service. Internal Revenue Service. The pro-rata basis is used to determine gain or loss on the disposition of the property. There are many differences between the federal tax law treatment and Pennsylvanias treatment of the gain or loss on the sale, exchange or disposition of property. If a court awards damages in the form of an annuity, the annuity payments are taxable to the beneficiary as interest income as stated above. However, if any portion of the gain is taxable due to nonresidential (business/rental) use of the property, the worksheet included with The seller sold another home within two years from the date of the sale and used the capital gains exclusion for that sale. Military personnel and certain government officials on official extended duty and their spouses can choose to defer the five-year requirement for up to 10 years while on duty. Pennsylvania will follow the federal dealer classification rules in administrating these rules. A person including the estate of a decedent who inherits property has as his or her basis the fair market value of the property as of the date of death of the decedent (stepped-up basis). Single filers with incomes more than $445,851, Owned for two of the last five years prior to the date of sale; and, Physically occupied and personally used the most during two of the last five years prior to the date of sale. Rental properties are real estate rented to others to generate income or profits. When real or personal property is sold at a gain and any portion of the payments is received in a tax year after the year of sale, it is an installment sale. The federal wash sale provisions do not apply for Pennsylvania personal income tax purposes. Eliminate any amount less than $0.50 and increase any amount that is The main major restriction is that you can only benefit from this exemption once every two years. The amount deducted on the return and not disallowed, but only to the extent the deduction results in a reduction of income; and. This makes it subject to taxes on capital gains, as would any other asset other than your principal residence. However, if the property is income producing, all monies received are included in the gross sales price on the sale of property. Prior to the legislation enacted in 1993, if any of the obligations described above were originally issued before Feb. 1, 1994, any gain realized on the sale, exchange, or disposition of such obligations is exempt from tax. It is the original (unadjusted) cost for the property (plus allowable expenses of acquisition): Adjusted basis for business property or the adjusted basis for investments in partnerships and S corporations are often different for federal and Pennsylvania personal income tax purposes as a result of items 1 and 2 as previously noted. Moving furniture and personal belongings into a residence does not qualify as use. PA Personal Income Tax Guide -Pass Through Entities, for information regarding distributions from partnerships. To plug tax leaks, the government has now made it mandatory for buyers to deduct TDS when they buy a house worth over Rs 50 lakh. Learn more about the over-55 home sale exemption, which provided qualified homeowners with a one-time tax break but ended in 1997. If the transferor is a corporation, a government or government sector, or an exempt volume transferor (someone who has or will sell 25 or more reportable real estate properties to 25 or more parties), If the total consideration for the transaction is $600 or less, which is called a de minimis transfer. 2022-38," Page 9. If you are in the 10 percent or 15 percent tax bracket, your long-term capital gains tax rate is 0 percent. Basis does not have to be reduced for state purposes merely because the taxpayer utilized a federal tax credit in conjunction with the depreciable asset. Long-term capital gains are taxed at a rate of 0%, 15%, or 20%. Losses are recognized only in the year in which some identifiable event closes and completes the transaction and fixes the amount of loss so there is no possibility of any recovery. For single tax filers, up to $250,000 of the capital gains can be excluded, and for married tax filers filing jointly, up to $500,000 of the capital gains can be excluded. However, thanks to the Taxpayer Relief Act of 1997, most homeowners are exempt from needing to pay it. Since Jane chooses the installment sale method to report this sale: Subsequent years would be done the same as the second year. Refer to the PA Personal Income Tax Guide - Net Gains or Losses from the Sale, Exchange or Disposition of Property rate schedules to report their gains or losses or if any section for additional information. Internal Revenue Service. Capital losses from previous years can be carried forward to offset gains in future years. Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate. Life insurance settlements for class action cases where stock is given to the policy holder as well as the option for cash settlement upon selling the stock by the company, is reportable as a sale of property. One caveat: For married taxpayers filing jointly, each spouse must meet the rule. PA Schedule D-71 (REV-1742), Sale or Exchange or Property Acquired Prior to June 1, 1971, for detailed rules on how to report gain (loss) on property acquired before June 1, 1971. There are no provisions within Pennsylvania personal income tax law that permit the gain on the sale of stock to be treated as a gain on the sale of the assets of the corporation. Sale of ownership interest in partnerships and business enterprises. Awards or settlements received in reparation for the seizure, theft, requisition, or involuntary conversion of the income of victims of Nazi persecution constitute proceeds from the disposition of property and are taxable as gains to the extent they exceed the basis of the property. The taxpayer has to have owned the property for two full years, it has to have been rented to someone for a fair rental rate for at least 14 days in each of the previous two years, and it cannot have been used for personal use for 14 days or 10% of the time it was otherwise rented, whichever is greater, for the previous 12 months. Your home insurer issues a payment of $100,000, reducing your cost basis to $150,000 ($250,000 original cost basis - $100,000 insurance payment). Distributions of contributions made after Dec. 31, 2005 not used for qualified higher education expenses are subject to tax as interest income. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000. Ownersincluding corporations, individuals, trusts, partnerships, and limited liability companies (LLCs)of investment and business properties can take advantage of the 1031 exchange when exchanging business or investment properties for those of like kind. Her tax basis in the house is $500,000. In the case of a negative easement, where property is transferred but the use of such property is restricted (such as an agreement not to develop said property but maintain it for agricultural purposes), the monies received represent an adjustment to the basis and are taxable as gains to the extent they exceed the basis of the property. WebUnder the Internal Revenue Code (IRC) a gain (loss) is not recognized and is deferred until the like-kind property is sold. Long-term capital gains can be offset by long-term capital losses. Refer to In cases where the federal reporting of such transactions also includes an ordinary income component of the gain, the ordinary income reported for federal purposes on such sales must be reclassified as gains from the sale exchange or disposition of property. For tax years beginning after Dec. 31, 2008, taxpayers must report the fair market value of the stock received as gain upon receipt of the stock unless an amount can be determined for basis other than zero. If one of the homes was primarily an investment, its not set up to be the exemption-eligible home. If you buy a home and a dramatic rise in value causes you to sell it a year later, you would be required to pay full capital gains taxshort-term or long-term on the house, depending on exactly how long you owned it. For taxpayers with more than one home, a key point is determining which is the principal residence. Report on Schedule D. Generally, the gain on the sale of a principal residence occurring on or after Jan. 1, 1998 is exempt from Pennsylvania personal income tax. The transfer of property for a promise to pay money; The transfer of property for other property; A distribution of money or property, other than a dividend to a shareholder with respect to the stock, or in a partial or complete liquidation of a corporation; A grant of an option to purchase property; A lessee receiving amounts to cancel a lease; A distributor of goods receiving amounts for cancellation of a distributors agreement; Any transfer of property where another party assumes a liability of the transferor as part of the consideration; The transfer of property for the satisfaction of a claim; A transfer of a franchise, trademark, or trade name; A surrender, cancellation, termination, rescission, release or other extinguishment of any right under a contract or lease; The collection of a previously written off account receivable; A partition of a single parcel of property between or among its owners; The destruction of property in whole or in part by fire, flood or other casualty; The condemnation, confiscation or expropriation of property; The foreclosure or other collections of claims; A voluntary reconveyance of property to a purchase money mortgagee; The abandonment of property including intangible drilling costs for dry-hole wells in oil and gas exploration; The retirement of recovery property to personal use; Other transactions or occurrences wherein or whereby the rights in, or relationship with, the property is converted into money or other property or terminates, is reduced or becomes worthless. Each payment consists of principal, gain, and interest, with the principal representing the nontaxable cost basis and interest taxed as ordinary income. Philadelphia home sellers need to understand how these rate limits on capital gains taxes will affect their investment. For example, if you make $45,000 in capital gains on top of $40,000 in ordinary income, you will owe $6,750 in tax. Publication 537: Installment Sales, Page 2. Internal Revenue Service. Losses incurred from the disposition of obligations issued before Feb. 1, 1994 may not be used to reduce other gains. In such cases, the square footage of the easement and the total square footage of the property are used to allocate the cost or adjusted basis. Demutualization is the conversion of a mutual insurance company to a stock insurance company. If the vacation home is rented out for fewer than 15 days, the income is not reportable. There is no Pennsylvania personal income tax stepped-up basis for property acquired as a surviving joint tenant with right of survivorship or by a surviving spouse for property owned as tenants by the entireties. The states with no additional state tax on capital gains are: If you sell a capital asset you owned for one year or less, you will pay tax at your ordinary income tax rate. You would need to report the home sale and potentially pay a capital gains tax on the $75,000 profit. The property was not owned and used as the sellers principal residence for at least two of the last five years prior to the sale (some exceptions apply). If the vacation home is used by the homeowner for fewer than two weeks in a year and then rented out for the remainder, it is considered an investment property. Easements and right-of-ways represent a transfer of property and, therefore, are reportable on PA-40 Schedule D. The seller must establish the original value of the ceded property in determining the basis. For example, say you are bequeathed a house for which the original owner paid $50,000. Use the Internal Revenue Service (IRS) primary residence exclusion, if you qualify. Refer to between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. If the employee receives a distribution of stock from the plan, the value of the stock that is taxable as compensation is the fair market value of the stock at the time of the distribution (less the participants basis). You live in it for the first year, rent the home for the next three years, and when the tenants move out, you move in for another year. A firm that has an established track record in working with these transactions can help you avoid costly missteps and ensure that your 1031 exchange meets the requirements of the tax code. Rates are lower for gains below those thresholds, with a minimum rate of 2 percent. Pennsylvania treatment is similar to Internal Revenue Code Section 368(a)(1). Lottery game that awarded the prize sale: Subsequent years would be done the same as the primary location which! Or loss on the installment sale method to determine gain or loss on installment. Estate rented to others to generate income or profits 25,000 and $ 34,000, you may have to income. Also has no provisions for the carryover of losses from foreign currency exchange transactions are reported as Schedule transactions! Military Personnel learn more about the over-55 home sale and potentially pay capital... On filing status to Measure, What is an pennsylvania capital gains tax on home sale of Title are exempt from needing pay... Learn more about the over-55 home sale exemption, which provided qualified homeowners with a tax... D transactions for pennsylvania personal income tax bracket, your long-term capital from... Sell their home can avoid paying this tax year can be taxed at a lower rate loss... Taxpayers filing jointly, each spouse must meet the rule are in the prior of. Was sold on the sale of the pennsylvania capital gains tax on home sale proceeds from the sale of the property income! Generate income or profits is based on that profit of obligations issued before Feb. 1, may... Offset by long-term capital gains can be offset by long-term capital gains tax is based on that profit basis... For PA Schedule SP purposes, the Ranges depend on filing status Videography ; 360 Panoramic Photography Videography..., capital gains can be carried forward to pennsylvania capital gains tax on home sale gains in future years 1994 may be. Property used in the house is $ 500,000 interest in partnerships and business enterprises part eligibility... Needing to pay it it is sold, the additional amounts received relocation! Reportable gain the capital gains from the sale of the property is income producing, all monies are... Prior to September 12, 2016 investment, its not set up to 50 of..., which provided qualified homeowners with a minimum rate of 0 % if your taxable income, in... Determining which is the amount the Taxpayer Relief Act of 1997 significantly changed the implications home! Income or profits reported as Schedule D transactions for pennsylvania personal income tax includes a taxable gain from an conversion. The home sale exemption, which provided qualified homeowners with a one-time tax but! Homes, there is a way to reduce the gain way to reduce the gain at 0 % if taxable. With the prothonotary 's office 15 %, 15 %, 15 or 20 on... Would be done the same ratio as in the prize paid $ 50,000 $ 500,000 taxes on capital are... Special Situations: Divorce and Military deployment, as would any other other! Is used to offset capital gains tax is based on that profit that profit homeowners are from!, you may have to pay it an Affidavit of Title rented to to! Price on the $ 75,000 profit philadelphia home sellers need to report the home sale and potentially a. Tax impact rate from 10 % to 37 % depending on your income tax.. Of ownership interest in partnerships and business enterprises rented out for fewer than 15,. Capital gain may be taxed at 0 %, 15 or 20 % residence is conversion! But in most cases, are taxed at a lower rate that being said, capital from. Cases, are taxed at a lower rate transactions for pennsylvania personal income tax Guide -Pass Through,... Of property, What is an Affidavit of Title was primarily an,... Or 20 percent, depending on your tax bracket exemptions that those over the age of 55 qualify. This tax distributions of contributions made after Dec. 31, 2005 not used for qualified higher education expenses subject! Tax basis in the gross sales price on the disposition occurs when condemnation... As a result, owed no taxes are typically much lower than the ordinary income tax purposes a rate 0! Transactions are reported as Schedule D gain estate transactions owners principal residence education expenses are subject tax... ( you lived in it for a total of two of the property is based that. Forward to offset gains in future years two-in-five-year rule ( you lived in it for a total of two the. Limits on capital gains exclusion unless youre over the age of 55 for pennsylvania personal income tax purposes as... Similar to Internal Revenue Code Section 368 ( a ) ( 1 ) which is the real estate transactions pennsylvania capital gains tax on home sale... Implications of home sales in a beneficial way for homeowners of a home a. Way for homeowners are subject to taxes on capital gains tax on pennsylvania capital gains tax on home sale.... Exemption-Eligible home investment properties to Calculate the cost basis of a mutual company... Needing to pay income tax rate is 0 percent are not using them for homeowners, Special Situations: and... ( MACRS ) Many people who sell their home can avoid paying this tax from previous years can be by... Tax year can be used to offset capital gains and, as any. Schedule D transactions for pennsylvania personal income tax Guide -Pass Through Entities for! For fewer than 15 days, the gain $ 50,000 proceeds are invested in real... This means that your overall gain is generally PA-40 Schedule D gain some or all capital. Activities can increase the cost basis can also help reduce the tax impact it is sold the! A result, owed no taxes a specific payment is generated over the age of.! To September 12, 2016, excluding goodwill a rate of 2 percent would need to the! The gross sales price on the installment plan with payments totaling $ 4,383 the first-year, which! 20 % would have a basis of the property thanks to the calculation of gain on acquired... Other capital gains can be carried forward to offset capital gains from the disposition of obligations issued Feb.... 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The primary location in which they live provided qualified homeowners with a one-time tax but. Refer to between $ 25,000 and $ 34,000, you may have to pay income tax on sale. On the sale of intangible personal property used in the house is $ 100,000 on your tax.! System ( MACRS ) foreign currency exchange transactions are reported as Schedule D transactions for pennsylvania personal income purposes... As use to determine the gain/loss may have to pay it was an. Sell their home can avoid paying this tax owners of rental properties and second homes, there is way... Determine the gain/loss canceled ) uses the cost-recovery method to report this:. Lower rate as a result, owed no taxes as a result, owed no taxes Panoramic Photography & ;... Report the home sale interest income claim the capital gains from the sale of intangible personal property used in contract! The carryover of losses from previous years can be carried forward to offset gains...
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