Could we recap all of this? Let me see if I have this correct.
Purchase Price of Rental Property - $440,000 in 2005. Started renting the property on 1/1/07. I added improvements of $10K to the property and deducted depreciation of $39,753 for 2007-2008-2009. The starting basis would be $410,247 for the property.
The house sold for $210,000 on 10/28/10. The net loss at that point would be $200,247. The bank mortgage cancelled debt of $163,176 which would result in a net loss of $37,070. I should be able to reduce my net income by $37,070, correct?
In addition, I would be able to deduct depreciation for 2010 up until the property was sold and also claim $21K in closing costs on the sale of the property. Is that also correct? If so, my loss would be in the area of $68,000.
Is the loss deductible from my net income directly or is there a limit on the capital loss? I'm not sure if this applies and would like more information on this.