My husband and I bought a house in August 2016 and fixed it up and sold it in March of 2017. We made a profit and paid capital gains tax on it. The buyers had issues in 2018 with water in the basement and threatened to sue us for repairs. We went to mediation and settled with them giving them money in 2019 for some of the repairs and giving us a loss on the property. I was told that this is deductable (the money we paid to them) as a long term capital loss but I'm unsure where to record this inTurbotax Home and Business and how to record it. My husband is self-employed and is it just recorded as money refunded to a customer?
I am sorry you lost money on the transaction. You need to go back into 2017 and report the additional expenses as an addition to basis (cost) of the property you sold. That way, your capital gain reported in 2017 will become a loss and you will probably receive a refund of taxes since your income will be reduced.
Unfortunately, the loss is a capital loss, which are limited to $3,000 per year. If you cannot take the full loss in 2017, you can carry it forward to 2018 and to years after that.
You can amend your return in TurboTax by following these instructions:
1. Log into your TurboTax program
2. Find "Your Tax Return & Documents" on your home page
3. Click on the "Show" option
4. Select the year you want to amend
5. You will see an option to "Amend(change)" the return for that year.
6. Just follow the instructions to start the amend process.
If you have a loss carryover to 2018, you will have to amend that return also. You will see an option to enter your previous year carryover loss under "Investment Income" in the "Wages and Income" section and then "Capital Loss Carryover".
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I just wanted to make sure I'm doing the correct thing. I was told that our loss was tax deductible as a Repayment according to Publication 525 and that it was deductible in 2019 because it was paid in 2019. I don't think I told him that we had a loss on the property. I wanted to make sure that my assumption that we have a loss on the property is correct. We refunded the buyers money in 2019 and it was more than the capital gains that we paid taxes on in 2017 so even though the money was refunded in 2019 it's a loss for the sale in 2017. It is more advantageous for us to amend our 2017 (and 2018) tax returns than to deduct it this year. Thanks for your help.
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