Do I still need to calculate the cost basis for a property that I sold even though I took a loss on the sale?

[Anonymous]

I purchased a house under my S-corp to flip for a profit. Instead of making a profit, I had to sell the place at a much lower price than when I got it. I purchased originally for $170K. The final selling price was $103K. Now I know there are things for cost basis that I need to calculate but wasn't sure if I should still do it because I am taking a huge loss already. I purchased in 2017 and finally sold in 2020. 

[HelenC12 · Accepted solution]

Yes, you have to calculate the correct cost basis so you can accurately calculate the gain or loss on the sale.  If you're ever audited, the IRS will want a detail on how you came up with the basis to calculate the loss amount. A loss may be carried forward and will not only affect the current year, it may affect your income tax returns in the future.

See How is a capital gain or loss calculated?

[Anonymous]

@HelenC12 

Thanks for the response. I figured I had to account for it. Once I do, i just think I will end up with a huge capital loss considering I already didn't make a profit from the sale. 

[AmyC]

The capital loss is subtracted $3,000 per year until you have a gain to go against it or it is used up. Be sure to keep up with your paperwork and the carryforward of the loss.

I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. You must keep tax records  from the time you purchase until your loss is used plus 3 years. It is very easy to lose track of disallowed losses.