Whether or not a rental property is viewed as a tax gain or a tax loss is generally based on three specific factors:Your initial investment when you first purchased your home.The cost of any improvements or renovations you may have made.Any depreciation deductions you’re claiming … When she graduated in 2009 we converted it to a rental. 1.165-9(b)(2)). I purchased a condo in 2006 for my daughter to use while in college. When faced with the prospect of selling at a loss now, or renting the property in hopes that the situation will improve, be sure that you are thoroughly considering all the factors. The rental property business is a hit or a miss. However, selling your rental property at a loss doesn’t necessarily mean you’ve lost. However, if the property was originally a personal-use property and it converted to a rental property when the Fair Market Value was less then the Cost Basis (usually the purchase price plus cost of improvements before it was a rental … J’s basis for depreciation is $185,000, the FMV at the time of conversion, since it was less than the adjusted basis. 5 Considerations for Selling a Rental Property at a Loss. Actually, a loss means at least some sort of tax event that will work in your favor so it may not be as stressful as you think. Rather than sell the house, he converted it to a rental property. Your cost basis (often just called “basis”) is the price you paid for a property, plus associated … After three and a half years as a rental, we will be selling the condo at a loss … Sec. It’s hard; no one wants to lose money, and it’s easily to become emotionally attached to a house. Here we will cover everything about selling your rental property at a loss. In most cases, the sale of Rental Property is sold in the rental section and you sell the 'asset' of the house. When Is Selling Rental Property Actually A Loss? Is it considered ordinary income or a capital loss? Depreciation Recapture on Sale. #1; the date that is was converted to rental property .Since the sale results in a loss, however, the starting point for basis is the lower of the property's adjusted cost basis or FMV when it was converted from personal to rental property (Regs. This will allow you to reduce the tax amounts that need to be paid for the property that was sold for a capital gain. I've seen different interpretations of this. Beware that if you decide to sell the property blindly, and then find out it was for a gain, you’ll end up having a higher tax bill. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental … Before you try to determine what your loss would be on your rental property if you sold it, you have to figure out your cost basis. To take this deduction, you must sell "substantially all" of your rental activity. The property’s FMV, excluding the land, on its conversion to rental property was $185,000. If It Really Was a Loss… If you calculate your tax basis and find out you are really at a loss, there actually may be some good news. The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. Even if you sell your property for a loss under the more stringent rules applied to converted rental properties, you might not have a loss. What is the correct tax treatment of the sale of rental property at a loss? 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