The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. Is it considered ordinary income or a capital loss? Selling a rental property at a loss will allow you to use the capital loss you obtained from selling one property in order to offset the capital gain that you may have obtained from selling another. Sec. 5 Considerations for Selling a Rental Property at a Loss. 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 … If you converted a personal residence into a rental property and then sold the property at a loss, you might still have a deductible loss. Depreciation Recapture on Sale. 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. 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. 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. 1.165-9(b)(2)). 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. What is the correct tax treatment of the sale of rental property at a loss? When she graduated in 2009 we converted it to 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. The rental property business is a hit or a miss. Your cost basis (often just called “basis”) is the price you paid for a property, plus associated … 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. This will allow you to reduce the tax amounts that need to be paid for the property that was sold for a capital gain. If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental … Rather than sell the house, he converted it to a rental property. I've seen different interpretations of this. I purchased a condo in 2006 for my daughter to use while in college. 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 … 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. However, selling your rental property at a loss doesn’t necessarily mean you’ve lost. It’s hard; no one wants to lose money, and it’s easily to become emotionally attached to a house. The property’s FMV, excluding the land, on its conversion to rental property was $185,000. Here we will cover everything about selling your rental property at a loss. When Is Selling Rental Property Actually A Loss? 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