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Old 03-04-2009, 07:49 AM
 
3,578 posts, read 6,313,858 times
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My friend has been renting out his second home for the past year at a significant loss. He purchased it for 600K in 2005. It's in Maryland. The last home sold for 550K in his neighborhood 2 weeks ago.

So he will have to sell for probably a 50-80K loss (including real estate commission).

So my question is:

Does my friend claim a 80K loss on his taxes? If his cost basis ends up being like 600K (probably a little more)-selling price (say it's 550K plus 30K in RE commissions)

I know he has to recapture his depreciation cost he claimed last year.

But how does he figure out the true value of his house from the time he started renting it out. In the neighborhood in Maryland, housing prices have only dropped 5-10 percent from peak?

I assume he can add back his rental losses (since he could not deduct any rental losses since he makes more than the 150K limit). He basically was losing 20K last year with the rental property.
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Old 03-04-2009, 06:15 PM
 
Location: Just south of Denver since 1989
11,465 posts, read 30,984,198 times
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Your friend needs a CPA with experience.
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Old 03-10-2009, 08:06 PM
 
3,578 posts, read 6,313,858 times
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Yeah, while doing my own taxes with my CPA, I had an opportunity to ask this question.

Turns out my friend gets to use the "adjusted cost basis" The home price at which his home was worth when he started renting it out (Oct 2008). He did a short term rental that's expiring.

Now he has an offer and while his "adjusted cost basis" is 50K less than his purchase price in 2005, he will get to deduct all the real estate commissions from the sale of his rental property.

So that's not too bad. he's getting a 30K (that's how much commissions are) tax deduction from his ordinary income thanks to IRC 1231 rule in the IRS taxbook.
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