Comments on: Are Losses on the Sale of a Home Tax Deductible?

By: Paige

Paige — Mon, 22 Aug 2011 21:07:06 +0000

Suzie, I am currently working with Access and my mortgage company to modify my home loan. I have a mortgage of 230,000.00 and only able to work part time.Gross(3147.00 to 3882.00)Depending if I work all the hours I can. I can’t find more work. I’ve invested 26,000. currently.
Currently, I have one more payment 9/1/11 and then Access will begin pursuing a permanent modification. The payment is 898.32 and in 5 yrs it goes down 250.00. Then I have a second-not yet worked out. The loan would be at 2% for 40 yrs.
A friend watched your program and heard that there is a bill that will tax you if you sell your house at a loss in the near future?
Should I save my house?? Paige

By: Rick

Rick — Tue, 10 May 2011 14:11:16 +0000

I know of a new house that was built five years ago and has never sold. The builder paid cash for the land and financed the construction. That construction loan may have been converted to an actual mortgage, I don’t know. But, I’m considering offering to buy the house for the pay-off balamce of his loan. Is he entitled to a tax write-off for the property and interest he has paid to date, or any other kind of write off?

By: GeoffMiami

GeoffMiami — Tue, 29 Mar 2011 03:48:23 +0000

http://www.irs.gov/publications/p544/ch01.html#d0e175

and pulication 544 goes into detail, but basically there is no way a loss on a primary residence can help reduce your tax bill.

If it was partially used and declared for rental, the rental costs and any depreciation and changes could get included as a business activity deduction, but it is more beleivable and acceptable if you are a real estate professional. However, there are additional cases of abandonment, condemnation and other reasons that may be included in some special cases. The detail should make you seek the advice of a Tax Accountant or Tax Lawyer.

If you are considering the sale of a second residence, an investment property or a property used for business there is scope for writing off the loss agains the adjusted basis. But it is complicated if there is any loan or financing associated with it. I have a property and am a real estate professional and for another employment related reason I purchased as a secondary home a property in another state more than 50 miles away from my main home. I treated it as a relocation, but in fact the project was ending earlier and the property retained as an investment vehicle with no rental income and a still declining local real estate market so I will be selling it at a loss this current year and it will qualify as a tax deductable event in the opinions of the professionals I have spoken with, assuming the sale price is still heading downward from my purchase price, with many factors to support this treatment should it be challenged by the IRS.

http://www.irs.gov/faqs/faq/0,,id=199617,00.html

By: Barb

Barb — Fri, 25 Feb 2011 20:57:45 +0000

My husband and I bought a condo for my dad to live in. We paid cash, so the only expenses were for taxes and condo fees. After he passed away, we sold it for a loss. Is this loss deductible?

By: Natalie

Natalie — Fri, 28 Jan 2011 05:26:03 +0000

@Diana- you can count the home as a second home. As such it is a capital asset and you can deduct up to 3k per year.

@Steve- Normally you can deduct the loss against your income. However I believe that you are limited to 25k more than income as NOL. Depending on your income you may not hit this limit. When doing your taxes don’t forget to recoup any depreciation you have taken.

As always, consult your tax professional for details as they apply to your specific situation.

By: Steve

Steve — Wed, 17 Nov 2010 21:23:25 +0000

I purchased a property as a primary residence in Jan-2005. I moved out and rented the property out from July-2008 through Sept-2010. The property has been vacant and listed for sale since then. The cost basis is about 82K higher than the offer I have to sell it.

I have paid income tax on the rental income, so no worries on that front.

When I file my 2010 taxes, am I able to deduct this entire 82K loss against my income for 2010 (minus previous depreciation from 2008 and 2009) using form 4797 or is there a limit to the amount I am able to deduct per year?

By: Diana Pola

Diana Pola — Fri, 12 Nov 2010 01:34:12 +0000

What about a home that was inherited? I inherited a home two and a half years ago and it is now in escrow. The sale price is $25,000 less than the cost basis. It has been vacant the entire time I have owned it. Are there any tax advantages for this situation?

By: G.E. Miller

G.E. Miller — Fri, 09 Jul 2010 11:52:50 +0000

@ Samurai – yeah… this might be one of those times where you would actually want to hire out a tax pro for a year to file your return so that you can pick their brain on all of the tax rules around second homes.

By: Financial Samurai

Financial Samurai — Thu, 08 Jul 2010 13:53:58 +0000

Sounds good. I’ve definitely been paying taxes. The prop is in a rental program and there’s a official income report that goes to the IRS.

Owning a 2nd home is quite a luxury, and it’ll be good to take educate myself about all the various tax options. Thnx for reminder.

By: G.E. Miller

G.E. Miller — Thu, 08 Jul 2010 12:18:18 +0000

@ Samurai – here’s a good article that should help with your question: http://www.hrblock.com/taxes/tax_tips/tax_planning/second_home.html
Hopefully you’ve been paying taxes on the income. Otherwise, forget about it.