selling rental property

[roger-vw]

Will IRS allow me to sell my rental property for $1000 and report all my rent, recapture my depreciation and be done with the property?

[Vanessa A]

Who are you selling the property to?  What is the value of the property?  Is this a legitimate sale or will you still have any benefit from the property?

The IRS will not stop you from selling a property for $1,000.  There is no rule against it.  However, how the loss will be treated is determined by who you are selling the property to.  

If you are listing the property on a for sale by owner site to a complete stranger that does not count as a related party to you, and are going to sell it for $1,000 even when the value is $25,000, then yes.  You can do this and you would still be able to claim the loss on the sale of the property.  The loss is deducted against your ordinary income.  You may also be able to go back and amend your returns from the prior 2 years to claim any additional loss from the sale and any extra that is not used, you can carry it forward for up to 20 years. 

If however, you are selling the property to your son or another related party, then you can still sell the property, however, you cannot claim the loss on your taxes.  IRC §267(a)(1) specifically disallows you to claim a loss on a sale to a related party. 

If you are selling to a related party, the loss that you cannot claim, will also affect the losses they may or may not claim if they decide to sell the property.  For example, if you sell the property to your son for $1,000, but your basis in the property is $50,000.  The $49,000 loss you are selling it for can only be used to offset any gain your son would then receive when he sold the property.  If he puts more money into the property and then sells it to Rita down the street at a loss, he cannot deduct that loss either. 

Selling Rental Real Estate at a Loss

Net Operating Losses (NOLs) for Individuals, Estates, and Trusts

[roger-vw]

I am selling the property to the long time renter.

I will have no connection to it and he is not a relative.

The property value is around $50,000.

I have rented it a long time and am tired of owning it.

[DianeW777]

As indicated by @Vanessa_A you can choose to sell it at an amount you choose since it's not a relative. This also means that you will recapture depreciation up to the amount of any gain, which will be low since the selling price is low.  All assets listed on your rental property must be sold so you can prorate the selling price and selling expenses with the example below, then follow the steps for each asset in the rental property. You can also decide an appliance for example may have zero selling price.

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Wages & Expenses
2. Scroll to Rental properties and royalties, click Edit/Add or Start/Revisit
3. Do you want to review your rental?, click Yes
4. Under Rent and Royalty Summary, click Edit
5. Click Update to the right of Assets/Depreciation.
6. Do you want to go directly to your asset summary?, click Yes and Continue
7. Click Edit to the right of each asset to be disposed of/sold
8. Go through several screens until you get to Tell Us More About This Rental Asset
9. Click on This item was sold…….   And continue to answer the questions

You might also review information here.

@roger-vw