Selling vacant home for a loss

[zsmigz]

Hi,

So ... I purchased a home in NJ in 2013 for about $710k.

From 2013 to 2016, I did a bunch of capital improvements on the home (major kitchen remodel, overhaul of four HVAC systems)  Total cost of improvements was $110k.

I lived there until August 2018, at which point I relocated to Minnesota.

I did not rent the property out, the house simply remained vacant, and I went through several realtors, unable to sell the property in a difficult market.  On top of the high upkeep (high property taxes, etc.), I had to pay very high vacant house insurance because of this as well (a barebones policy was over $3000/year).

In order to sell the house, ended up having to pay $40,000 to replace the entire septic system, which was installed right before closing.

The house finally sold for 681k in October 2020.  Real estate fees, commissions, title fees, legal fees etc. totaled $62k.

Since this home was vacant from August 2018 through October 2020 and only being held for investment purposes, can I classify it in TurboTax as business property in order to claim the loss?

If i just put it as a regular home sale in turbotax (adjusted cost basis, $836k, sale price of $681k with $62k expenses), i can't seem to claim any losses here as turbotax considers "personal losses" NOT tax deductible.  It seems completely wrong that I have about $218,000 worth of losses that i don't seem to be able to use..

Thanks!

[Carl]

Since the property has no business use during your period of ownership, any loss you realized on the sale is just flat out not deductible unfortunately. Losses on the sale of personal property have never been deductible. If you did not receive a 1099-S, then you don't need to report this sale on your tax return at all since it was sold at a loss.

[zsmigz]

Couldn't one contend its use was as investment property? it was not my primary residence during that period.

[Carl]

You specifically stated you lived in the property from 2013 until 2018, which makes it clear it was your primary residence. That tells me you took out a standard home buyers type of mortgage, not an investment property mortgage. So I don't see how you can claim it was investment property. Especially since there was absolutely (according to you) no business use of the property of any type during your period of ownership.

Maybe I'm missing something here? It's perfectly possible.

[zsmigz]

Thanks for the prompt response, Carl!

I still had the original homeowners mortgage on it, however, I did have to treat it from an insurance perspective as *vacant property*. so i had to get vacant property insurance instead of regular homeowners insurance.

While it listed on the market (From 2018 through 2020), we tried to explore the renting options but did not end up finding a renter.

In Minnesota, I rented since September 2018 and that was my primary residence.