Can I deduct a loss on the sale of rental property that was a result of an equity gift?

[adaidone1]

The loss was based on an equity gift.

[Hal_Al]

No. Usually your cost basis in a gift is the giver’s cost basis. However, if you later sell at a loss, you are not allowed to use the giver’s basis. You must instead use the fair market value (FMV) at the time of the gift. This assumes that the FMV basis results in a smaller loss.
The giver's accumulated depreciation also transfers to you to recapture, at tax time.
You should consider having your taxes done professionally.

[TaxGuyBill]

When you say "equity gift", do you mean you paid for the property, but at less than Fair Market Value?

If so, the loss (if any) is based on the price you actually paid (then adjusted for depreciation and improvements), not the 'full' price.

[adaidone1]

Thank you for your responses but I don't believe I explained my situation clearly.

I was selling the rental property to my daughter and her husband.  To help them get a mortgage, I offered them a "gift equity" amount of $30,000.  This brought the net selling price to approximately $20,000 below FMV.  What I'm asking is can the difference between the FMV and the final selling price be deducted as a loss for my 2017 taxes?

Thank you in advance for your help.

[TaxGuyBill]

When determining your "loss", did you factor in the depreciation?  If you did not take that into account and if were able to claim a lot of depreciation, it is possible that you have a Gain.

[adaidone1]

Thanks again Bill for the info!  Yes, I am aware of consideration of depreciation.

[Hal_Al · Accepted solution]

No. You may not deduct a loss when property is sold to family at less than FMV or even at FMV.