I closed on a sale of property on 05/07/2021, and received 1099-S showing gross proceeds. We actually lost money on this deal. How does the IRS treat this?

If the property was held for investment, in other words there was minimal personal use of the property, the sale would be treated as a capital loss. As such, it would be combined with other capital gains or losses you might have, and if it results in a net loss, it is subject to a maximum $3,000 deduction per year.

 

If you used the property for personal use, as a vacation home for instance, the loss would not be deductible.

 

 

 

 

what type of property? a personal residence that was never rented (thus no depreciation) - no deduction but you still have to report it. In step-by-step mode Turbotax will adjust the info so no loss is allowed.

 

if it's depreciable property or real property used in a trade or business it gets reported through form 4797. the loss is allowed 

 

if it's investment property it gets reported on form 8949 (which flows to Schedule D) and is a capital loss.