How Do You Report Real Estate Losses When You Sell?


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A few days ago I posted a blog on the 4 types of real estate losses you may experience when you hold real estate, and the tax implications of each. Today, I want to talk about the 4 types of real estate losses you may experience when you sell.

(1) You have a loss when you sell your home.

There are a lot of rules and actually some of them changed in 2009 for what happens when you have a gain. But what happens when you have a loss? Unfortunately, nothing. You don’t get any tax benefit for a loss on the sale of a personal residence.

(2) You have a loss when you sell an investment.

What happens when you sell an investment, never having put it in service, and you sell that investment as a loss? It’s a capital loss. That means that the loss is first used against other capital gains and then the loss rolls forward at $3,000 per year until it’s used up. Remember that your state laws may vary here, so don’t assume that just because the feds allow you to roll a loss forever that the state will as well.

(3) You sell rental real estate at a loss.

If you sell your real estate rental property at a loss, it’s an ordinary business loss. UPDATE! You’ve got an even bigger benefit here with the new Stimulus Bill expected to be signed by Pres. Obama. Look for an announcement soon on my new FREE! teleseminar “Opportunities in the New Economic Stimulus Bill”

(4) You sell real estate that has been used as a business.

If you sell your property that has been used as a business (such as a vacation rental or a hotel), then a resulting loss is an ordinary loss. That means it can be taken against other income.



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