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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29574
Experience:  Taxes, Immigration, Labor Relations
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I sold a residential rental property and closed in early

Customer Question

I sold a residential rental property and closed in early 2015. When I go to see my loss (I'm sure) in selling it, shall I add the fair market value of the land to the basis of the house from 2014? How do you do that? I see I am entitled to deduct up to $25,000 in loss on sale unless I made too much in non-rental income. If I cannot take the deduction for 2015, can I carry over the whole thing into future years, even though I do not own the property anymore? Please advise. thanks, Brian
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Hi Brian and welcome to our site!

Generally - we may not use the fair market value as your basis.
The basis is the cost which you actually paid when the property was purchased.
ONLY if the property was inherited - we will use the fair market value at the time the decedent passed away as the basis.
Please indicate if the property was inherited or purchased?

Customer: replied 1 year ago.
Purchased. I was using the value while rented from the tax office's valuation.
Customer: replied 1 year ago.
I used that because tax office split in between house and land. Did depreciation in rental years on house only (and have some carried forward from that as well)...
Expert:  Lev replied 1 year ago.

As the basis - we need to use your purchase price - and apportion it between the land and the building
We may not use valuation done for real estate taxes as the basis - that is not correct.
The basis is your investment into the property - which is the purchase price in your case.

The basis may be adjusted by some items (increased or decreased)

However - when you apportion the basis between the land and the building - you will use the same percentage as for tax office valuations. But will need to use YOUR cost.

Expert:  Lev replied 1 year ago.

If you has rental losses in previous years that were disallowed and because of that were carried forward - these losses are generally fully deductible in the year the rental property is sold - in this case - there is no passive activity limitation.
Regarding depreciation - it is allowed for the building only - and the land is not depreciated.
The basis of the building will be adjusted by the depreciation.