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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2439
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Hi, I have a question regarding a rental property that I

Resolved Question:


I have a question regarding a rental property that I purchase 5 years ago. Last year I gave it back to the seller who sold it to me. I gave him a deed in lieu of forclosure. I orinally purchased it for $ 775,000 and had a balance on the loan of $ 558,000 with I sign it back to him. I put down a down payment of $ 200,000 when I purchased it 5 years ago and I lost it when I deeded the property back to the seller. There was no bank involved, seller took a note and deed of trust on the property when I purchased it. He kept the property and did not send me any 1099 for any losses. I think I have a loss here but my tax professional is telling me that even though I do have a loss that it can't offset and social security taxes on my other income. I am a full time real estate broker and it's my understanding that real estate professioanls fall under a different catagory and are able to offset any losses from passive income but this might be a little different. Let me know what I can do
Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.
HI Jacustomer1jpOsn74

Thank you for using justanswer. If you are speaking about an Net Operation Loss (NOL) , meaning you actually have a negative AGI after taking the loss on the sale of the rental, then I must agree with your tax professional. There are some special provisions for farmers re: NOL's, but there are no special provisions for self employed folks, not even for realtor's. Please see below: (you will need to copy and paste the below link into your browser.

Here's the direct link from the IRS website:

Publication 536 (2009), Net Operating Losses (NOLs) for Individuals, Estates, and Trusts

There will be times when one can have no taxable income (due to the NOL etc) but still have the SE tax

Although I absolutely sympathize that this seems extremely unfair, the basic concept involved is that income taxes and self-employment taxes are two different things. SE tax is to pay into social security. It is based on one's business profit for that year only, just as fica taxes are withheld from employees wages each year based on their earnings. Employees who have zero federal taxable income must still pay fica taxes, it works the same for the self employed.

I hope this helps.
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