Seasonal Rental Sale

[Pinevalleyite]

We bought a property in 2013 at a beach location. We use it on several weekends and a week or so in early summer and rent it out for July and August. Every year, we've had a passive loss on our taxes because our expenses far outweigh what we earn in rent for those 2 months of the year. TurboxTax also prorates our expenses since we use the property a percentage of the year and rent it a percentage of the year. Now we have sold in in 2020. Can I deduct all those annual passive losses we took every year against the sale proceeds? It was not our primary residence and we, in fact, sold our primary residence in 2020 as well.

[DaveF1006]

If you have deducted those losses in the past, you will not be able to deduct these again unless there are passive carryover losses from previous years. This is found here.

In addition, previous depreciation that was claimed in prior years will be recaptured in the sale thus reducing the basis of your property.  This may result in a capital gain for the sale. 

[Pinevalleyite]

I thank you and have another question: In filling out the sales info for selling the condo in Sept of 2020, it asks that I only put the business percentage portion of the sales prices and the business percentage portion of the selling expense but then shows a very large gain. Ultimately, we didn't make any money on the property overall based on everything we put into it over the years along with passive losses for the 8 years we owned it. We were also hit with a large assessment this year and one for several years ago and I can't see how to add that to my basis?

[ThomasM125]

The passive losses would be carried over from year to year on form 8582 Passive Activity Loss Limitations and be deducted on your schedule E in the year that you sold the property. TurboTax will do this automatically.

If you mean a tax assessment, you can deduct it as property taxes on your rental schedule in the year that you paid it. 

[Pinevalleyite]

Thanks. By assessment, I meant an hoa assessment and it was in 2020 and 2021 but part of our agreement to sell our unit had us paying the whole assessment in 2020 so buyers had no obligation on that cost.

[DianeW777]

The HOA fees can be deducted on the rental activity as an expense under the 'Other' expense category. However, an advance payment for the following year is not always currently deductible. 

There's an important exception called the 12-month rule for prepaid expenses. It lets you deduct a prepaid future expense in the current year if the expense is for a right or benefit that extends no longer than the earlier of:

• 12 months, or
• until the end of the tax year after the tax year in which you made the payment.

Based on this rule, it seems you could deduct the full amount of your HOA fees.