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How would I declare a tax loss on the sale of a property in this weird situation?

Asked by: megan 352 views YA Discussion

This is a little complicated. We lived in a home 5 years ago. We rented it out after we moved. What type of tax loss am I eligible for given this situation: Say we paid $ 400,000 for it. We lived there for three years. For the last 5 years it has been a rental. When we moved out and the house became a rental it probably was worth $ 500000. Since the housing collapse the value has gone way down. It is now worth $ 380000. For a tax write off do I declare the purchase value or the value of the home when it became a rental unit? (I have extensive documentation that it was used as a rental unit and not a primary residence)

Asked: chris c

How others found here:

  • declaring a loss on taxes from sale of home
  • What information does an IRS auditor use for determining depreciation not taken on a sold property

4 Answers



  1. Chas on Jun 01, 2011 Reply

    Your house has a cost basis of $ 400,000 less depreciation taken. If it’s been rented for the last five years I fail to see how this can become a question now. What were you basing depreciation on?

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  2. tro on Jun 01, 2011 Reply

    the amount of your loss related to the rental would be claimed on Sch D
    how many years did you own it, how many years did you rent it? that would be your % of the loss that you would be allowed to claim
    the price you paid for it would be your basis, and it would be assumed that is the value you put on it for depreciation of the rental period

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  3. Habah on Jun 01, 2011 Reply

    Your loss is limited due to Rental Real Estate Passive income/Loss Rules. You are limited to $ 3000 loss per year. The loss can be brought forward but only for a set number of years. you will neve be able to write it all off.

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  4. the tax lady on Jun 01, 2011 Reply

    This is not complicated to anyone who regular does the form 4797.

    When you converted the property to a rental, you were supposed to get an appraisal and determine the FMV at that time. The basis for depreciation was the LESSER of FMV or basis.

    According to you, you bought at $ 400K (basis). You converted it to a rental at $ 500,000 (your estimate), so your basis for depreciation was $ 400K (but building only). Each year your schedule E would have shown depreciation (roughly $ 12K per year). So after 5 years, your accumulated depreciation is about $ 60K and the adjusted basis would now be $ 340K. If you sell for $ 380K, so you actually ave $ 40K of GAIN from depreciation. That GAIN is taxed at ordinary tax rates (but no more than 25%). If your 2010 tax return had a form 8582, you claim any suspended passive losses in the year of sale. (Passive losses were limited based on income, not $ 3000.)

    You do NOT get to claim a loss from the market peak since you were never taxed on the gain when you converted the property. (If you had sold–which you didn’t–you could have excluded the gain, but since you didn’t sell, the point is moot.)

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