How to Sell an Investment Property for a Loss

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How to Sell an Investment Property for a Loss. Selling an investment property for a loss will give you a tax write-off directly against your income.

Things You'll Need

  • Calculators
  • Tax Consultants
  • Calculate your "basis;" this is the base variable used to calculate the gain or loss on the sale of a property. Your original basis is comprised of the property's purchase price plus the buying expenses (non-recurring escrow costs such as title insurance, escrow fees, recording fees, transfer taxes, commission, tax service, deed preparation, credit report, appraisal fee and termite inspection) upon acquisition.

  • Calculate your adjusted basis. The adjusted basis is the original basis plus improvements made to the property while you've owned it.

  • Sell the property. With an all-cash transaction the tax event occurs in the year the property is sold.

  • Calculate depreciation. (According to the I.R.S., every asset has a useable life, and the amount of depreciation is calculated according to the life of a certain asset. Consult with the I.R.S. or an accountant/C.P.A. to determine the correct amount of depreciation you should use.) Use the total amount of depreciation taken on tax returns for the total time the property has been held.

  • Calculate the expenses of the sale. Expenses include real estate agent commission (if any) and any other expenses directly associated with the sale of the property.

  • Add the expenses of the sale to the adjusted cost basis. This is your new adjusted basis.

  • Add the total depreciation to the sales price, and subtract from the new adjusted basis. This is the amount of your loss.

  • Assure yourself of a loss by calculating that the adjusted cost basis of the property plus the expense of sale will be greater than the gross sales price plus all depreciation.

  • File I.R.S. form 4797, Sale of Business Property.

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