TLH Sale Of Rental Property Against Stock Gains

[FS51]

I'm hoping someone will be able to point me in the right direction...

3 years ago we moved out of state for work. We were unable to sell our home but we were able to rent it out. I converted the home to a rental property 2 years ago and started depreciating it as a rental property on our taxes. As the pandemic hit we decided to make the move to try to sell the house again and broke ties with our renter (who was also looking to get out). We're selling the house at a substantial loss to what we initially purchased it for. Having never wanted to be a landlord, we're just happy to have the house sold and the equity back in our pockets.

My question is, can I take the capital loss on the house and put it against potential stock gains this year. Sounds funny losing money on a house but gaining on individual stocks this year. All of the rest of our investments adhere to our AA and are in passive index funds. After the 2008 great recession I bought an individual stock I liked at a very depressed value for a small play position. I'm ready to exit that position especially if I can mitigate the LTCG against the capital loss on my rental property. Is this possible? Assuming I've already screwed up the accounting portion of the rental on my taxes the last few years is this a simple proposition, if possible, or should I find a competent accountant?

Any help/thoughts are appreciated

FS51

[Longdog]

I'm hoping someone will be able to point me in the right direction...

3 years ago we moved out of state for work. We were unable to sell our home but we were able to rent it out. I converted the home to a rental property 2 years ago and started depreciating it as a rental property on our taxes. As the pandemic hit we decided to make the move to try to sell the house again and broke ties with our renter (who was also looking to get out). We're selling the house at a substantial loss to what we initially purchased it for. Having never wanted to be a landlord, we're just happy to have the house sold and the equity back in our pockets.

My question is, can I take the capital loss on the house and put it against potential stock gains this year.

I believe the loss, if any, would have to be against its value at the time you put it into service as a rental (2 years ago), less the depreciation you already took. Not the original purchase price.

[DarkHelmetII]

Remember basis of property is less of original purchase price or fair market value at time of transitioning to a rental.

[Gill]

Are you sure you have a loss? Your basis is the fair market value at the time of conversion to a rental less depreciation plus capital improvements after the conversion.
Gill

Edit: I see three of us responded at once!

[FS51]

Thank you for the quick replies! How does one determine the fmv at time of conversions? In my mind, it was worth what we paid for it, haha.

Purchase price minus depreciation, I believe I'm still the red.

[Longdog]

Thank you for the quick replies! How does one determine the fmv at time of conversions? In my mind, it was worth what we paid for it, haha.

Purchase price minus depreciation, I believe I'm still the red.

You'd need to have some independent documentation that establishes its value around the time of the conversion to rental. One example that I think is pretty reasonable and defensible would be the assessment on which the property tax was based at the time, divided by the common level ratio (or whatever its called in your area). Another would be to pay an independent appraiser to assess its value at the time it went into service as a rental.

[FS51]

Thank you for the quick replies! How does one determine the fmv at time of conversions? In my mind, it was worth what we paid for it, haha.

Purchase price minus depreciation, I believe I'm still the red.

You'd need to have some independent documentation that establishes its value around the time of the conversion to rental. One example that I think is pretty reasonable and defensible would be the assessment on which the property tax was based at the time, divided by the common level ratio (or whatever its called in your area). Another would be to pay an independent appraiser to assess its value at the time it went into service as a rental.

I love the property tax assessment example. This property is assessed significantly higher than comparables on other streets. Ridiculous taxes are one reason we're happy to be out of it. Thank you, this is very helpful!

[Gill]

Appraisers can give you an “as of” appraisal. My guess is it might be close in value to your current selling price.
Gill

[FS51]

Appraisers can give you an “as of” appraisal. My guess is it might be close in value to your current selling price.
Gill

Yes. I believe if I asked for an appraiser to give me an as of appraisal right after selling my home, it would be fairly close to what it sold for. I appreciate your input!

[Gill]

Appraisers can give you an “as of” appraisal. My guess is it might be close in value to your current selling price.
Gill

Yes. I believe if I asked for an appraiser to give me an as of appraisal right after selling my home, it would be fairly close to what it sold for. I appreciate your input!

I’m not sure you understand what I was saying, which is your current selling price probably isn’t too much different than the property value two years ago and therefore little loss and possibly a gain after deducting depreciation.
Gill

[FS51]

I understood. It's why I wouldn't go that route, haha. It's good to know my options though!

[Longdog]

Thank you for the quick replies! How does one determine the fmv at time of conversions? In my mind, it was worth what we paid for it, haha.

Purchase price minus depreciation, I believe I'm still the red.

You'd need to have some independent documentation that establishes its value around the time of the conversion to rental. One example that I think is pretty reasonable and defensible would be the assessment on which the property tax was based at the time, divided by the common level ratio (or whatever its called in your area). Another would be to pay an independent appraiser to assess its value at the time it went into service as a rental.

I love the property tax assessment example. This property is assessed significantly higher than comparables on other streets. Ridiculous taxes are one reason we're happy to be out of it. Thank you, this is very helpful!

You have to adjust it based on the published normalization value (common level ratio) to get fair market value. You don’t just use the raw value.

[FS51]

Thank you for the quick replies! How does one determine the fmv at time of conversions? In my mind, it was worth what we paid for it, haha.

Purchase price minus depreciation, I believe I'm still the red.

You'd need to have some independent documentation that establishes its value around the time of the conversion to rental. One example that I think is pretty reasonable and defensible would be the assessment on which the property tax was based at the time, divided by the common level ratio (or whatever its called in your area). Another would be to pay an independent appraiser to assess its value at the time it went into service as a rental.

I love the property tax assessment example. This property is assessed significantly higher than comparables on other streets. Ridiculous taxes are one reason we're happy to be out of it. Thank you, this is very helpful!

You have to adjust it based on the published normalization value (common level ratio) to get fair market value. You don’t just use the raw value.

Yes. Based on your reply I was hoping I could google to see what I should divide or multiply by based on my town. I assume something similar to what zillow and realtor com use to come up with their estimated values. I think if I can find an acceptable rate for my town, this would play out favorably for me.

[MarkNYC]

How many years have you owned the property, and how much less is the selling price than the purchase price?

[FS51]

How many years have you owned the property, and how much less is the selling price than the purchase price?

Owned the property 8 years. Approximately 45k less.

[FishTaco]

I recently looked this up as I am in the process of selling a house converted to rental. From what I recall,
the cost-basis for computing a loss is the lesser of original cost basis at purchase vs fair market value at time of conversion.

https://www.bradyware.com/home-to-renta ... tax-rules/

[FS51]

I recently looked this up as I am in the process of selling a house converted to rental. From what I recall,
the cost-basis for computing a loss is the lesser of original cost basis at purchase vs fair market value at time of conversion.

https://www.bradyware.com/home-to-renta ... tax-rules/

Thank you for the article. This fully explains it. While I think I may actually be in a situation to take a loss I'd worry about a potential audit for what's deemed an unlikely event in this market. Closer towards the end of the year, I'll pull out turbotax, see what I've used the a basis for the last 2 years of depreciation and play with the numbers to determine if it makes sense to sell the stock or not and use the loss. I'm betting it's not going to be worth the trouble though.

Thank you all for the input!