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Losing money on a house

Faster horses said:
I just found out that if you buy a house, live in it, and sell it for less,
you cannot use that loss to offset any income tax due.

Is anyone else aware of this? Sure doesn't seem fair to me...
Click to expand...

You can only claim a tax loss on investment property. A loss on a personal residence is considered to be a nondeductible personal expense for federal income tax purposes. Most states follow the same principle.
Click to expand...

Another exception is for principal residences that are converted into rental property. Here is where you may be able to limit your loss if you don't need to sell the house right now.

Many people do not like to own rental property, especially when they don't live nearby. However, you should talk with your tax advisers about this possibility.

How does this work? First, remove all evidence that this remains your principal home. Change your driver's license and your voting registration. If you are getting some tax benefit for your main home -- such as the homestead exemption in the District -- advise the real estate tax office that you no longer are eligible for this tax reduction.

"You actually have to rent out the home before you can take a loss deduction,"

In other words, it is not sufficient to give a real estate agent a listing or place a "for rent" advertisement in your local newspaper. If you cannot rent the house, you cannot take any deduction for your loss.
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usually a year of rental is sufficient.. but like everything .. get professional advice...
 
Faster horses said:
You mean capital gains from something else, Clarence?
Like capital gains from selling cattle you held more than 2 years?

I'm sorry, folks. I put this in the wrong place. I think it
should be under PB, but I don't know how to move it.
Sorry!
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1rrp0o.gif
:wink: :lol:
 
Correct me if I'm wrong but I think if you buy a home and live in it and later sell it for more than you paid you are liable for capital gains tax unless you replace it with a more expensive home or take the once in a lifetime capital gains exemption. If this is true, and I think it is, then you should be able to deduct a capital loss. I'd check real close with the tax person and maybe even get a second opinion.
 
If you buy a house and later sell it for a profit, the profit up to $500,000 for couples and $250,000 for singles is not subject to tax whether you replace it or not. More than that, you can adjust the basis of a new house.

If you buy house and later sell it for a loss, bad luck. I think you might be able to adjust the basis for a replacement house on which you may make a profit later.

Personal items such as automobiles, guns, etc are taxed it you make a profit and not allowed as a loss, unless you are in the business - such as a person who regularly buys and sells cars.

No one says it is fair. The government has only one source of money and that is the people. As long as they spend money unwisely, there is only one place to get it - the people. If they borrow it, the people will have to pay that back, too.
 
Cowpuncher said:
If you buy a house and later sell it for a profit, the profit up to $500,000 for couples and $250,000 for singles is not subject to tax whether you replace it or not

I think you have to have lived in it at least two yrs to be exempt and it has to be your homestead not just a rental. At least that is my understanding.
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Cowpuncher gave by far the most correct answer on the thread. I'll post more if someone sends me my $150 hourly fee.
 
Steve said:
Faster horses said:
I just found out that if you buy a house, live in it, and sell it for less,
you cannot use that loss to offset any income tax due.

Is anyone else aware of this? Sure doesn't seem fair to me...
Click to expand...

You can only claim a tax loss on investment property. A loss on a personal residence is considered to be a nondeductible personal expense for federal income tax purposes. Most states follow the same principle.
Click to expand...

Another exception is for principal residences that are converted into rental property. Here is where you may be able to limit your loss if you don't need to sell the house right now.

Many people do not like to own rental property, especially when they don't live nearby. However, you should talk with your tax advisers about this possibility.

How does this work? First, remove all evidence that this remains your principal home. Change your driver's license and your voting registration. If you are getting some tax benefit for your main home -- such as the homestead exemption in the District -- advise the real estate tax office that you no longer are eligible for this tax reduction.

"You actually have to rent out the home before you can take a loss deduction,"

In other words, it is not sufficient to give a real estate agent a listing or place a "for rent" advertisement in your local newspaper. If you cannot rent the house, you cannot take any deduction for your loss.
Click to expand...

usually a year of rental is sufficient.. but like everything .. get professional advice...
Click to expand...

The gotcha part is that you have to value the rental at market price when you convert a residence to a rental.

Example: So your home you paid $100,000 for and can sell for only $75,000 ($25,000 loss) and converted to rental property now has a cost basis of $75,000. Not gaining anything unless the housing market recovers and you sell for $100,000 a year or so later, which then you will owe capital gains on $25,000.........unless you convert it back into your residence for 2 years before selling. :arrow:
 
Cowpuncher said:
If you buy a house and later sell it for a profit, the profit up to $500,000 for couples and $250,000 for singles is not subject to tax whether you replace it or not. More than that, you can adjust the basis of a new house.

If you buy house and later sell it for a loss, bad luck. I think you might be able to adjust the basis for a replacement house on which you may make a profit later.

Personal items such as automobiles, guns, etc are taxed it you make a profit and not allowed as a loss, unless you are in the business - such as a person who regularly buys and sells cars.

No one says it is fair. The government has only one source of money and that is the people. As long as they spend money unwisely, there is only one place to get it - the people. If they borrow it, the people will have to pay that back, too.
Click to expand...


Yes, this is the same info I got through my cpa. Investment properties are another ballgame entirely.
 

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