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Old 12-09-2020, 11:05 PM
 
492 posts, read 483,231 times
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Need some clarification friends: We bought a primary home. We bought it at a high price in a bidding price war situation. Due to some personal reasons we have decided we cannot live there and want to sell it. So we have placed our house on market after 4 months of buying it.
We had a lot of showings and interest but offers were minimal and low ball. One best offer is at above the price we bought the house for but despite that, we will end up losing more than 80 grand on the sale.



Is it a good idea to convert the house to a rental and rent it out and then sell it after a year or couple of years? Am I correct in understanding the IRS rules that loss incurred on sale of rental property (and not primary residence) can be offset against your income?


Any suggestion is appreciated.
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Old 12-09-2020, 11:23 PM
 
1,448 posts, read 1,347,148 times
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Limit is 3000 per year on using losses to offset income from other than capital gains. You can carry the rest forward. I used to lower my offer, when countered with a request for highest and best... seemed to end most of the chicanery. Until I sold, and my realtor suggested I ask for highest and best on a full cash offer, that was by itself. Sheesh.
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Old 12-10-2020, 03:53 AM
 
105,693 posts, read 107,682,511 times
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Quote:
Originally Posted by Vin100 View Post
Need some clarification friends: We bought a primary home. We bought it at a high price in a bidding price war situation. Due to some personal reasons we have decided we cannot live there and want to sell it. So we have placed our house on market after 4 months of buying it.
We had a lot of showings and interest but offers were minimal and low ball. One best offer is at above the price we bought the house for but despite that, we will end up losing more than 80 grand on the sale.



Is it a good idea to convert the house to a rental and rent it out and then sell it after a year or couple of years? Am I correct in understanding the IRS rules that loss incurred on sale of rental property (and not primary residence) can be offset against your income?


Any suggestion is appreciated.
what daxhound said is the case , plus if a rental you would need to take depreciation too and then pay the depreciation back when sold .
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Old 12-10-2020, 05:01 AM
 
Location: The Triad
34,091 posts, read 82,464,944 times
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Quote:
Originally Posted by Vin100 View Post
Due to some personal reasons we have decided we cannot live there and ...
Any suggestion is appreciated.
Reconsider this decision... for at least as long as it takes for the market to catch up with your price.
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Old 12-10-2020, 12:12 PM
 
492 posts, read 483,231 times
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Quote:
Originally Posted by mathjak107 View Post
what daxhound said is the case , plus if a rental you would need to take depreciation too and then pay the depreciation back when sold .
I understand.
This is a above million dollar property in the Capital. I am getting about 50K above the price I bought it for. But if we add closing costs and realtor fees, I will still end up losing 80K if I sell it at that price.
Rental will be around 5.5K
So after depreciation, we will have a lot of loss to show. Can't we accumulate that loss over next 3-4 years and then use it to reduce our tax liability when we sell it?
Also, I do think we can get a better offer on the house in the spring season or later. One of the reasons I was not getting a higher offer was probably because buyers were skeptical why did the property came back on market just 4 months after being sold.
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Old 12-10-2020, 12:13 PM
 
492 posts, read 483,231 times
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Quote:
Originally Posted by MrRational View Post
Reconsider this decision... for at least as long as it takes for the market to catch up with your price.
Thanks Mr. Rational.
The decision is taken on that. We have moved on to other house.
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Old 12-10-2020, 12:51 PM
 
Location: Raleigh
13,629 posts, read 12,253,936 times
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Quote:
Originally Posted by Vin100 View Post
I understand.
This is a above million dollar property in the Capital. I am getting about 50K above the price I bought it for. But if we add closing costs and realtor fees, I will still end up losing 80K if I sell it at that price.
Rental will be around 5.5K
So after depreciation, we will have a lot of loss to show. Can't we accumulate that loss over next 3-4 years and then use it to reduce our tax liability when we sell it?
Also, I do think we can get a better offer on the house in the spring season or later. One of the reasons I was not getting a higher offer was probably because buyers were skeptical why did the property came back on market just 4 months after being sold.
I don't think that's how it works...You depreciate it over the next four years...Let's say for rough numbers the house was purchased for $1 million and you've written off $140K of it...theoretically it's worth $860K. Then you go to sell it, and you get the same $1 million you paid for it...You then have a gain of $140K you owe taxes on unless you put the proceeds into another rental through a 1031.

As it is, your life may be a lot easier and cleaner taking a short term loss...talk to your accountant.
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Old 12-10-2020, 01:09 PM
 
105,693 posts, read 107,682,511 times
Reputation: 79324
Quote:
Originally Posted by Vin100 View Post
I understand.
This is a above million dollar property in the Capital. I am getting about 50K above the price I bought it for. But if we add closing costs and realtor fees, I will still end up losing 80K if I sell it at that price.
Rental will be around 5.5K
So after depreciation, we will have a lot of loss to show. Can't we accumulate that loss over next 3-4 years and then use it to reduce our tax liability when we sell it?
Also, I do think we can get a better offer on the house in the spring season or later. One of the reasons I was not getting a higher offer was probably because buyers were skeptical why did the property came back on market just 4 months after being sold.
depreciation must be taken yearly .

but it is paid back when you sell at up to a 25% tax rate . it is no bargain . but the laws say you have to take it because you will pay it back whether you took it or not
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Old 12-10-2020, 01:28 PM
 
Location: Southern New Hampshire
10,009 posts, read 17,920,510 times
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OP, you know you could get tenants who would pay $5,500/month to rent a house? And they would definitely pay every month -- even in this crazy time period?

I wouldn't trust that at all. I'd hate to lose $80k but if you bought a million-dollar house, then left it after 4 months and are already in another house, you can perhaps afford it more than most? (Not being sarcastic -- just thinking I would never take a chance on renters in this environment, especially at that rent.)

Good luck, in any case.
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Old 12-10-2020, 01:42 PM
 
492 posts, read 483,231 times
Reputation: 161
Quote:
Originally Posted by JONOV View Post
I don't think that's how it works...You depreciate it over the next four years...Let's say for rough numbers the house was purchased for $1 million and you've written off $140K of it...theoretically it's worth $860K. Then you go to sell it, and you get the same $1 million you paid for it...You then have a gain of $140K you owe taxes on unless you put the proceeds into another rental through a 1031.

As it is, your life may be a lot easier and cleaner taking a short term loss...talk to your accountant.
I agree, but after taking depreciation each year, if I show a rental loss of about 25K each year, after 4 yrs, cant I offset this rental loss against the profit of sale.
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