For my 2019 taxes, my ex-wife and I sold our rental home at a loss. I heard that if the home was a rental property for three years, the loss could be a write off. True?

Forum|Forum|5 years ago
March 29, 2021
6 replies
37 views

No text available

TurboTax Online

Critter-3

Level 15

Read the rules here:

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/property-basis-sale-of-home-etc-5

GregWilkerAuthor

Level 2

Critter-3; what you directed me to seems to me to be about a gain on a property sale. What about writing off a loss on a rental property?

Carl

Level 11

The rules are complex, and from what I can tell the TurboTax program seems to handle things correctly, provided of course all the data is entered correctly and all the required check boxes are selected.

I'm not going to get into the nuances, bur basically, you first reduce the cost basis in the property by the amount of depreciation taken (or the amount of depreciation you should have taken) to establish the "adjusted" cost basis for determining gain/loss on the sale.

If sold at a loss, your losses against other ordinary income "may" be limited to $3000 a year every year, until that loss is used up.

If the property was classified as residential rental property in the tax year of the sale *and* you were actively involved in the rental activity, then in the year of sale *only* you *may* be able to claim a maximum of $25K in losses against other ordinary income. It just depends on if you were actively involved in the rental activity (in the year you sold it) as well as your AGI for that tax year.

Anonymous_

Level 15

The loss on the sale of property held for rental purposes may result in a net operating loss (NOL) which can be carried back five years (or the carryback can be waived and the loss carried forward).

Regardless, the loss against ordinary income (ie., the offset) is not limited to $3,000 per year.

Carl

Level 11

@Anonymous_ Tab topic 409 at https://www.irs.gov/taxtopics/tc409 insinuates otherwise in the section for limits on deductions and carry over of losses. That's why I say it's not always as simple as a blanket statement of there being no limits. But for the most part, chances are that all losses will be allowed in the year of the sale resulting in a loss - be they in the year of the sale and/or a carry back.