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Old 07-23-2017, 08:00 PM
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Capital Loss

I asked my tax pro this question, but thought I would post here too.

We took a bath on a real estate purchase. Bought it for $630K and will be selling it for $200K. The property is used as a rental and has had passive activity losses accumulating for about 8 years too.

I know the tax pro also includes a depreciation schedule in our federal filing each year for the property..

I'm trying to get a sense for what kind of tax benefit (if any) we will receive when we sell the unit. I'm not sure if there are limits to how much of a deduction we can take. Does AMT come into play? Does it need to be spread out over multiple years?

Any and all insight is appreciated.



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Old 07-25-2017, 05:38 AM
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Originally Posted by ivanl3 View Post
I asked my tax pro this question, but thought I would post here too.

We took a bath on a real estate purchase. Bought it for $630K and will be selling it for $200K. The property is used as a rental and has had passive activity losses accumulating for about 8 years too.

I know the tax pro also includes a depreciation schedule in our federal filing each year for the property..

I'm trying to get a sense for what kind of tax benefit (if any) we will receive when we sell the unit. I'm not sure if there are limits to how much of a deduction we can take. Does AMT come into play? Does it need to be spread out over multiple years?

Any and all insight is appreciated.
I'm trying to get a sense for what kind of tax benefit (if any) we will receive when we sell the unit. I'm not sure if there are limits to how much of a deduction we can take.==>> You can only deduct losses on the sale of property used for business or investment purposes. The only way you can obtain a deduction if you sell your home at a loss is to convert it to a rental property before you sell it. However, your deductible loss will be limited. When selling a rental house at a loss, the loss may actually turn out to be smaller than you?d expect. While you were renting it out, you were most likely depreciating the cost of the house on Sch E of 1040 on your return. When you sell the house, your cost basis in the house is reduced by the amount of depreciation you?ve taken, which makes for a smaller loss. When selling a rental house at a loss, the loss may actually turn out to be smaller than you?d expect. A loss from the sale of a rental property is tax deductible as an ordinary loss. Ordinary losses are deductible in full against your ordinary income (like your wages and interest you earn, for example).A loss on the sale is treated as an ordinary loss. This is actually not a bad thing.




Does AMT come into play?====>I do not think that there is direct relation between AMT and ordinary loss deduction on the sale of rental home.


Does it need to be spread out over multiple years?========>it depends; if you own rental property, you may be entitled to tax deductions on it, including a deduction on any losses you suffered on the property. The IRS allows you to deduct up to $25K of rental property loss as of July 2011; the exact amount of loss you may deduct depends on your AGI. If you have more losses than you are allowed to deduct, you may carry them forward until you have deducted all losses or sold the property.



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