The property’s FMV, excluding the land, on its conversion to rental property was $185,000. The tax rules provide that you may deduct your suspended passive losses from the profit you earn when you sell your rental property. After three and a half years as a rental, we will be selling the condo at a loss … Depreciation Recapture on Sale. Your cost basis (often just called “basis”) is the price you paid for a property, plus associated … 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 … In most cases, the sale of Rental Property is sold in the rental section and you sell the 'asset' of the house. 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 … 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. Is it considered ordinary income or a capital loss? If you own only one rental property and sell it, then you can take the deduction because that property is your entire rental … However, selling your rental property at a loss doesn’t necessarily mean you’ve lost. The rental property business is a hit or a miss. 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. When Is Selling Rental Property Actually A Loss? When she graduated in 2009 we converted it to a rental. 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. 5 Considerations for Selling a Rental Property at a Loss. What is the correct tax treatment of the sale of rental property at a loss? I've seen different interpretations of this. Rather than sell the house, he converted it to a rental property. 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. 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. #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. I purchased a condo in 2006 for my daughter to use while in college. 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. 1.165-9(b)(2)). Here we will cover everything about selling your rental property at a loss. It’s hard; no one wants to lose money, and it’s easily to become emotionally attached to a house. J’s basis for depreciation is $185,000, the FMV at the time of conversion, since it was less than the adjusted 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. 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. To take this deduction, you must sell "substantially all" of your rental activity. 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. 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