Originally Posted by AllenC
#1;Self employed real estate agent- business income from transaction commissions, rentals, and property purchase resales. Bought investment home in 2007 and rented it out for last 6 years, sold it in 2013 for a $42,000 loss. Thought it would deduct off my schedule C income since it is part of my business activity and reduce my self employment tax among other benefits.
#2;Tax software is subtracting loss from my married joint filed income on front page of 1040. Is that correct or am I not entering it properly? Thanks, first time taking a loss on a sale so new to me.
#1;The sale of any business property is reported on Form 4797. Residential real estate is reported in Section III as it is Section 1250 property subject to special depreciation recapture rules UNLESS it takes a loss. As you said, the IRS uses different loss rules to limit the types and amount of losses deducted for rental properties. The tax savings realized through a tax loss may be used to offset income such as self-employment income reported on Sch C /SE.pleaseremember; The loss, ordinary biz loss, not non-biz cap loss, is deducted against your gross income; As you take a loss on the sale of the rental pty, you do not need to recapture the unrecaptured sec 1250 deprec. taxed at an ordinary tax rate.the losson the sale will be treated as an ordinary loss in the year that you sell the property.also, Carryover losses also will be allowed as a deduction upon the sale as ordinary loss by being reported on 1040 line 14.
#2;i m not familiar with the software hiowever,As it is reported on 1040 line 14 as ordinary loss, it reduces your total income on line 22 and AGI on 37, TI on line 43, and your tax liability on line 44.
When you own property and use it as your primary residence, the IRS does not allow you to take a deduction when you sell it at a loss. To take a capital loss on property, you have to own it as an investment property. For example, if you have a rental property and its value declines before you sell it, the IRS will then let you take a deduction based on the loss amount.