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Taxes on selling a property at a loss


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Hi there. Hopefully someone can validate some of the information I am seeing.

 

Any insight would be greatly appreciated.

 

https://turbotax.intuit.com/tax-tools/tax-tips/Rental-Property/Selling-Rental-Real-Estate-at-a-Loss/INF12125.html

 

I own 2 properties in Atlanta, GA. My primary residence is a big home 4 bedrooms, 4 bathrooms, big finished basement. We paid 240K like 8 years ago.

 

I own a townhome that I was renting for this whole 8 years, and I had to actually evict the tenant. We are fixing this place up. It will be like less than 4 miles from the new Braves stadium. We will have to spend a good chunk of change to get this to where we would actually like to live there, and also add a privacy fence. Reason being......we have dogs.

 

My wife recently became unemployed, and since we never had kids we are thinking about moving from the primary residence to the townhome to lower monthly expense.

 

No, what to do with the main home? I am thinking at most we could sell the 240K property for 210K, but more likely we get abound 190K. It may be time to leave. People in this community are not moving and not doing enough to maintain the community, and I fear the neighborhood is moving towards even lower values. Also, this property has a lot of potential money pits.

 

Might be time to take the loss (we owe less than the 190K so I do not believe we need to come out of pocket).

 

How can I take advantage of this for taxes? From what I have read, you can write off a whole loss on rental property, assuming you rented for at least 1 year, but you cannot write off anything on a main home, for the same reason you pay no taxes if you sell your main home too. The link I posted says you can convert property from primary to a rental, but you may not get to write off the loss if the property already declined before. I just don't know enough about taxes to take advantage of things I may not be thinking about in this case.

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It's complicated determining your basis along with depreciation and how long you need to rent it out for it to no longer be your primary. I agree this is for a CPA. Why you'd come here for advice regarding something like this is beyond me.

Edited by Chef Jim
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It's complicated determining your basis along with depreciation and how long you need to rent it out for it to no longer be your primary. I agree this is for a CPA. Why you'd come here for advice regarding something like this is beyond me.

 

Because we give cheap advice. CPA's cost money.

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Thought someone here might have some tax knowledge. I have read enough information to determine that there is no tax benefit ever on a primary residence and to wait until it is a tax benefit is against what my financial adviser said. Actually his advice was funny. If you are young enough you can afford some loss, don't stay living where you are not liking to live.

 

The recovery in housing is not everywhere, and there is a HUGE investor market. Not nearly the recovery that is advertised, and you are being forced to pay the 20% down now to get the good interest rates.

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Thought someone here might have some tax knowledge. I have read enough information to determine that there is no tax benefit ever on a primary residence and to wait until it is a tax benefit is against what my financial adviser said. Actually his advice was funny. If you are young enough you can afford some loss, don't stay living where you are not liking to live.

 

The recovery in housing is not everywhere, and there is a HUGE investor market. Not nearly the recovery that is advertised, and you are being forced to pay the 20% down now to get the good interest rates.

 

Well I do agree partially with what he says. Your age has nothing to do with it however your primary home is just that, your home not an investment. If you don't want to live there take the loss and move on. You still have equity right? Your line right here answers your question:

 

No, what to do with the main home? I am thinking at most we could sell the 240K property for 210K, but more likely we get abound 190K. It may be time to leave. People in this community are not moving and not doing enough to maintain the community, and I fear the neighborhood is moving towards even lower values. Also, this property has a lot of potential money pits.

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Well I do agree partially with what he says. Your age has nothing to do with it however your primary home is just that, your home not an investment. If you don't want to live there take the loss and move on. You still have equity right? Your line right here answers your question:

 

I think he was bringing up age because there are a lot of working years left, and by moving I would get over an hour day each work day back too, my commute would be 30 minutes less each a day. If I was older and did not have to work the commute would not bother me as much too, really. Signs point to selling at the loss.

 

I don't know if we have equity, really. we owe like 170K on a 240K home, and I hope we get 190K, that would mean we get to walk away, with NO MORE out of pocket other than what it costs to move to other place.

 

I appreciate your comments.

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I don't know if we have equity, really. we owe like 170K on a 240K home, and I hope we get 190K, that would mean we get to walk away, with NO MORE out of pocket other than what it costs to move to other place.

 

I appreciate your comments.

 

Stop thinking of it as a $240K house. It's worth what it's worth. If you want to move/invest in a different house, do it. If not, stay put.

 

Don't let the emotions of losing money on the house drive your decision. And remember, you'll be buying back into the same depressed market.

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Stop thinking of it as a $240K house. It's worth what it's worth. If you want to move/invest in a different house, do it. If not, stay put.

 

Don't let the emotions of losing money on the house drive your decision. And remember, you'll be buying back into the same depressed market.

 

Makes sense, without a doubt.

 

Thought I would share this, from a friend who is in the tax business:

 

If he converted the main house to rental, the tax basis for purposes of his "rental activity" is going to be the lesser of the cost basis or the FMV on the date it is converted. Just based on his comments below, it sounds like the value of the house is $190k now, so if he converted it to a rental property, the tax basis for purposes of the rental activity would be $190k. If he rents it for a year and sells it for $190k, then he would basically have no gain or loss on the sale for purposes of his rental activity (you would also have to take into account depreciation, but it essentially should be a no gain or loss situation). Unfortunately, he would not be able to recognize a loss attributable to the decline in value during the period he used the house as his personal residence.

 

If he is expecting values to decline, it sounds like the best strategy is to sell now. I don't see any potential tax strategies that would justify holding on to the house.

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Makes sense, without a doubt.

 

Thought I would share this, from a friend who is in the tax business:

 

If he converted the main house to rental, the tax basis for purposes of his "rental activity" is going to be the lesser of the cost basis or the FMV on the date it is converted. Just based on his comments below, it sounds like the value of the house is $190k now, so if he converted it to a rental property, the tax basis for purposes of the rental activity would be $190k. If he rents it for a year and sells it for $190k, then he would basically have no gain or loss on the sale for purposes of his rental activity (you would also have to take into account depreciation, but it essentially should be a no gain or loss situation). Unfortunately, he would not be able to recognize a loss attributable to the decline in value during the period he used the house as his personal residence.

 

If he is expecting values to decline, it sounds like the best strategy is to sell now. I don't see any potential tax strategies that would justify holding on to the house.

 

Yup. Sell now. Why keep it in and rent it (I think it's 2 years not 1) so you can sell it for a greater loss so you'd have more losses to right off? At $3000 a year in max write offs (unless you have like gains you can wash those out above the $3k) it makes no sense to hold it.

 

I like how it appears you cut and pasted the reply from the tax guy and how he used the words he. So you sent him an email that started out with: I have a friend............. :rolleyes:

Edited by Chef Jim
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Yup. Sell now. Why keep it in and rent it (I think it's 2 years not 1) so you can sell it for a greater loss so you'd have more losses to right off? At $3000 a year in max write offs (unless you have like gains you can wash those out above the $3k) it makes no sense to hold it.

 

I like how it appears you cut and pasted the reply from the tax guy and how he used the words he. So you sent him an email that started out with: I have a friend............. :rolleyes:

 

Friend sent to a friend......

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I agree this is for a CPA. Why you'd come here for advice regarding something like this is beyond me.

Because you get so much better advice from random strangers on an Intarweb message board than you could ever get from a trained and licensed professional :rolleyes:
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Stop thinking of it as a $240K house. It's worth what it's worth. If you want to move/invest in a different house, do it. If not, stay put.

 

Don't let the emotions of losing money on the house drive your decision. And remember, you'll be buying back into the same depressed market.

 

This^^^^

 

Home is home. I just got my REVISED REASSESSMENT. County of Will (Illinois) must be loving it! The assessment is down 19%. I am tempted to petition another appeal (somebody already appealed it for this revised assessment) just to piss Will County off... A house just went up for sale on my corner for another 20% lower! LoL...

 

I got 30 days.

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