Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 05-24-2012, 02:36 PM
Junior Member
 
Join Date: May 2012
Posts: 1
Loss on Sale of Rental - Are there limits to loss deductions

I have a condo I have been renting for 2 years. I lived in it prior to renting it out. I am thinking about selling the unit and when I do, I will most likely have to sell it at a loss of about $60K. Will I be able to deduct the entire loss of $60K? I have never deducted depreciation on the unit. I am also wondering how do you determine the tax basis for a given property? Any help would be greatly appreciated. Thanks.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 05-25-2012, 07:56 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
“I have a condo I have been renting for 2 years. I lived in it prior to renting it out. I am thinking about selling the unit and when I do, I will most likely have to sell it at a loss of about $60K. Will I be able to deduct the entire loss of $60K?”----->So, you converted a residence to a rental property, then, you do expect a tax loss from selling the rental property you’ve owned for more than a year. That loss will be a Section 1231 loss, an ordinarly loss( NOT LTCL)which can be a good kind of loss to have since Sec 1231 losses can be used to reduce any type of income you may have -,i.e., salary, bonus, self-employment income, capital gains, you name it. You may have a NOL if the Sec 1231 loss is large enough to reduce your other income below zero. If so, you can carry back the NOL for at least two years(carry forward for 20 years) and use it to offset taxable income in those years. In doing so, you can recover some or all of the taxes you paid in those previous years by amending those returns.If any of the NOL is left over after going back two years, you can carry the rest forward into future tax years to offset future income (for up to 20 years). Alternatively, you can choose to not to carry it back and just carry it forward for 20 years.
“ I have never deducted depreciation on the unit.”----> Although you can opt to not claim the depreciation, you will be treated as if you did. End effect is that you give up the tax benefit associated with the depreciation you did not claim, but will have to pay tax , 25%, on the profit when you sell the property as if you did claim the depreciation; depreciation recapture can cause a significant tax impact for people who are selling residential rental properties. Part of the gain will be taxed as a capital gain and may qualify for the maximum 0%-15% rate (depending on your personal marginal tax rate) on long-term gains. The part of the gain that is related to depreciation, however, will be taxed at a maximum 25% rate
“I am also wondering how do you determine the tax basis for a given property? “---->When you convert a personal use asset such as a home to business property such as a rental property, your basis for calculating future loss becomes the lower of the property's fair market value or cost.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply



Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Rental converted to primary -how to handle loss on sale Kingfasi Rental Real-Estate 0 04-10-2012 11:11 PM
A gain on a loss on a home sale? SeanMcD98 Capital Gains 3 03-31-2012 08:42 PM
Sale of partnership interest at a loss: Can I claim this loss on my tax return? jcp1376 Income 1 10-07-2011 04:14 AM
Condominium Deposit Loss due to Developer Fraud - How to treat the loss on taxes? Betico Itemized Deductions 0 09-08-2010 02:05 PM
How does a taxpayer report a loss on sale of a rental property on their tax return? TaxGuru Rental Real-Estate 0 09-15-2009 01:33 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.