As a real estate agent, an investor, or an owner, you want to sell a property as well as make money. This means that you should get more money from the sale than the money you invested, in order to get a profit. Unfortunately, as all experienced real estate agents will tell you, this is not easy and not always possible. There are a few times when you will incur a loss on your property, especially if you bought the wrong property, if you overpaid for it, or if you want to sell it when the real estate market is down. The good news is that you can sell a property at a loss and still make a profit out it. Below are tips on how to do this.
The loss that you incur while selling a property can be adjusted against tax. It can be used to reduce your total income earned through other sources such as salary, capital gains, and bonuses. The resulting amount will only be taxed. For example, you might have a total income of $150,000, which includes the money that you earned from your salary and bonuses during the last year. Now, you bought a property a year ago for $500,000 and you had to sell it for $400,000. The $100,000 loss is adjusted against your income, which means that you will be paying tax on only $50,000 as your income.
Passive Activity Losses
If your property did not earn any income over the last year, you can show it as passive activity loss. However, that can only be deducted against passive activity income, such as rentals and other passive business activities. You can also claim that as a loss when you sell that property.
Sell a Property After Conversion
You cannot claim a loss for selling a personal residence. However, when you convert it into a rental property, you can claim the loss, provided that it is lesser than the cost or value when the conversion was made.