I got married in 2015, and my wife moved into my current house for a multitude of reasons. She owes more on her house then it is currently worth. We have had it on the market for about a year and haven't had any luck selling it. I'd rather take a loss on the house of 7-8k then continuing to pay on a house that is just sitting vacant. I don't want to rent it out or deal with tenants. Can a deduction be claimed for the lose on the sale of this home, or could we rent it out for a period of time, sell the house and then take a loss on sale and receive a deduction? Any advice would be greatly appreciated.
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posted: Oct. 13, 2016 @ 10:28a
You can't deduct the loss on a primary residence. You are allowed to deduct the loss on an investment property (subject to other rules such as the fact you can only claim a 3,000 loss per year that isn't offsetting other investment gains). If you transition the home from primary to investment and the basis is lower on the date of transition then your loss will be based on the actual sales price and the lower cost basis on the transition date. Also you would have to deal with depreciation between the transition date and the sale date. Bottom line is you can't be 10k (or 100k) underwater, change it to a rental and then deduct that loss. You can change to a rental property, then lose 10k in home value, and then take the loss.
How you prove the date of and home value at the time of transition from primary to rental is up to you, but those are the items that would be examined during audit if you were audited. Things like having a true appraisal from a licensed appraiser, having tenants in the property, rental ads, etc. would justify the transition date and value.
There is nothing stopping you from filing that you converted it to a rental a year ago and then lost 7-8k, but if you get audited you would be asked for documentation to back up those facts.
gaf2255 said: We have had it on the market for about a year and haven't had any luck selling it.
Unless there are special circumstances, this almost always is an indication that the asking price is too high. If you list it competitively priced, there should be some takers. That price may be too low compared to what you have currently listed it for.
Senior Member - 3K
posted: Oct. 13, 2016 @ 11:15a
As I understand you, the property was her personal residence until she moved out. How long did she own/reside there? That question only applies if some flakely math shows capital gain - just covering base.
At this point, you as a family should take a risk vs reward assessment. Depending on the tax advisor, she might claim she was holding on to the property as an investment after she moved out, but changed her mind and sold for a possible capital loss. Risk: If you rent it out for a year or more, that strengthens her conversion to investment property. Tax advisor would have to be paid to determine tax basis. (more money out of pocket) Risk: What a tenant might do to the property - If you get a bad tenant, you could be out more money. You may have to spend more money to bring into saleable condition than you would at this point. Risk: Depending on town where her home is at, many govenments are requiring code inspections to be allowed to rent homes out. Code inspections can demand work done on the stupidest things costing more money than it is worth to do. To be fair, the same risk will be there when you sell the home (now or later) when the buyer gets FHA/VA and possibly some other financing. Many buyer financing has clause requiring code inspections be passed before financing closes. Risk: vacancy (maintenance and utilities) costs you are incurring if you get a bad tenant. Risk: Timing the sale - Market can change. Price valuation can go down as well as up.
It is for you to decide. Personally, news media says good market for sellers in many parts of the country. I would at least find a good Realtor and get a market estimate including knowledge of similar properties in that market and how well they sold or did not sell. MOST Realtors will do a free market estimate in an attempt to get your business. IF you decide to sell, interview any realtor like you are hiring them - How would they market the home? Success in that area? KEEP IN MIND ANY REALTOR MARKET ESTIMATE IS NOT AN APPRAISAL. Some may lowball the proposed price to increase the likely quick sale. Some may overestimate in expectation of getting the listing and talk you back down after they have a contract.
STRONG RECOMMENDATION: Get an attorney that specializes in real estate. Marriage can affect title in many states. Get title insurance as a condition of sale. That can protect her, you, the buyer and the new mortgage company. Not in many sales contracts, but get a clause that requires changing utilities to new buyer no later than closing.
Disclaimer: While I have given you some things to consider, I am sure there should be other considerations. This is very incomplete to the whole process.
Best wishes in your new life. Many the Lord bless your marriage in ways you both appreciate.
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