Court Settlement To Buy Rental
I am about to win a large settlement for a real estate deal gone bad. I have read that the settlement is taxed as ordinary income. Could I buy a rental property for cash and claim it as an expense (loss), thereby offsetting the income tax-wise? I would then rent it for a number of years, and later pay capital gains on sale.
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[ Edited by bostonbob on Date 08/11/2003 ]
Sorry, bostonbob, but the answer to your question is no.
Purchasing a rental property does not create a capital loss. Selling an investment property for less than its book value creates a capital loss that can be deducted on your tax return.
Hard to understand how you plan to expense the purchase of a capital asset, but I am not an accountant. If the capital asset is residential real estate, you recover the cost of the asset through depreciation over 27.5 years.
Thanks for the reply. It really pains me to have to pay tax on that money as ordinary income. Does it matter that the settlement reflects the appreciate of the property I had a contract for that was not honored? Is there anything else I might do?
Sorry, still ordinary income taxed at your ordinary income tax rate.