Berkeley CSUA MOTD:Entry 51307
Berkeley CSUA MOTD
 
WIKI | FAQ | Tech FAQ
http://csua.com/feed/
2025/04/03 [General] UID:1000 Activity:popular
4/3     

2008/9/25-30 [Reference/Tax] UID:51307 Activity:nil 72%like:51301
9/25    How much tax can you deduct from selling a PRIMARY residence at a
        loss?
        \_ It's a capital loss.  You can deduct up to $3K per year if
           it's not offset by capital gains.  (You can offset as many
           capital gains as you like).  You can carry forward capital loss
           from one year to the next.  Assuming it's not the home you live
           in, in which case the rules are different.  -tom
           \_ All true, and I think you can carry forward for 10 years (= $30k)
              \_ ALL WRONG. Will the IRS let you claim a write-off for the
                 loss? Nope. You can only claim a tax loss on investment
                 property. A loss on a personal residence is considered to
                 be a nondeductible personal expense for federal income tax
                 purposes. Most states follow the same principle. Double ouch!
                 http://www.smartmoney.com/tax-advice/index.cfm?story=20070405
                 \_ hey nimrod, the post originally said "selling property
                    at a loss" and didn't specify it was a primary home. -tom
Cache (2848 bytes)
www.smartmoney.com/tax-advice/index.cfm?story=20070405
Listen to this site on my phone with Jott Feeds Updated on March 14, 2008. IT'S A HOMEOWNER'S worst nightmare: selling your home at a loss. Sadly, with the real estate market slowing, more folks are discovering that, yes, this can actually happen. The worst-case scenarios are when folks borrowed heavily to buy in at the top or took out big home-equity loans while prices were inflating -- two situations that can result in having the mortgage debt exceed the current value of the home. And if homeowners in these situations have to sell, not only will they owe money to the bank, but there could be some unexpected income tax consequences to boot. A home sale where the mortgage debt exceeds the net sale price (after subtracting out commissions and other transaction costs) is often called a short sale by real estate types. If you find yourself in this situation, here's what you need to know about the federal income tax implications of short sales. Short Sale Tax Basics Naturally, this subject is a bit complicated. The easiest way to explain matters is with some examples. Example 1: Say you paid $260,000 for a home that you can now sell for a net sale price of $300,000. Unfortunately, you also have $350,000 of first and second mortgages against the property. For tax purposes, you'll have a $40,000 gain if you sell, because the sale price exceeds your tax basis in the home ($300,000 sale price - $260,000 basis = $40,000 gain). The IRS doesn't care that you're still $50,000 in the red after the sale ($350,000 of debt vs. The bottom line is you can have a tax gain without actually having any cash to show for it. Suing Your Broker Is Easier Said Than Done The good news is that you will probably qualify to exclude the $40,000 gain for federal income tax purposes -- thanks to the home sale gain exclusion break. Depending on where you live, there may or may not be a state income tax hit. Of course, you can also have a short sale where the net sale price is less than what you paid for the home. Example 2: Say you paid $340,000 for a home that you can now sell for a net sale price of $300,000. You also have $350,000 of first and second mortgages against the property. For tax purposes, you'll have a $40,000 loss if you sell because the sale price is lower than your tax basis in the home ($300,000 sale price - $340,000 basis = $40,000 loss). A loss on a personal residence is considered to be a nondeductible personal expense for federal income tax purposes. Now, what about that $50,000 that you still owe the mortgage lender in both of the preceding examples? In most cases, the lender won't let you off the hook for any of the debt. You'll have to figure out a way to pay it off, and you won't get any tax breaks for doing so. If you're more fortunate, the lender could decide to forgive some or all of the unpaid $50,000.