Rental/personal House Sale Loss

[MRPLOW]

Have searched and have not been able to come up with an answer.

Here are the details t/p's bought home in 2006 and lived in it
unitl 6/1/09. At that time they converted it into a rental house.
Rented out during this period and then sold on 8/6/10.

basis at time of rental: 272,400
minus value of land: -67,200
Depreciated at: 205,200


basis: 272,400
settlement costs: +23,435
depreciation: -8,705
adjusted basis: 287,130

Sales price: 252,000
adjusted basis: 287,130

Loss of: -35,130

Can this loss or a portion of this loss be deducted on Form 4797?

[Burke]

TP lived in house 3-4 yrs depending on date of purchase (not given). Rented for one year. Pro-rate sale between the two uses. If rented just because it did not sell, might not have a rental loss at all. Personal loss not deductible.

[Roland Slugg]

Prorating the loss based on time owned is not correct. When the house was converted to a rental, its basis became the LOWER of its adjusted cost basis or its FMV at that time ... i.e. on 6/1/09. In most areas of the country home values fell between 2006 and 2009, so the FMV as of 6/1/09 was probably lower than its $272,400 cost basis. The wise thing for the owner to have done would have been to have the house appraised at that time, but a good appraiser may be able to do an "after the fact" appraisal now, and the seller should definitely get one to support whatever value he claims to be the property's rental value/basis.

If the appraisal comes in lower than $272,400, which is likely, that means the depreciation of $8,705 was also too high and amended returns should be prepared and filed, at least for 2009. The 2010 depreciation can be corrected before the 2010 return is filed ... I assume.

How to handle the costs to sell is another question. I don't know if they can all be added to the basis of the rental or if they should be prorated by time owned ... about 72% to personal (36 months out of 50) and 28% (14/50) to rental. I would research this, and in the absence of an authoritative answer, I would prorate.

[Kram BergGold]

Cost

You need to provide the cost of the house in 2006 before we can help you.

[MRPLOW]

The cost of the house in 2006 was 272,400.

The house value went up slight and then down slightly during the period from 2006 until 6/1/09.

I am confident in saying that the FMV and the basis were extremly close to each other on 6/1/09.

The house was rented with the intentions of the owner possibly coming back at some point in the future to live in it. Owner's job situation changed, so they were no longer going to come back to the house. Renter moved out and out of town owners sold the house quick to get rid of it.

[solomon]

§280A(d)(4) takes the rental out of the deductions limitation because of having a qualified rental period. In light of this, perhaps there is no limitation or allocation required of the sales expenses - not sure.

It would be interesting to know if there were a gain on the sale, whether you would opt for the §121 exclusion (for which it would qualify) other than the unrecaptured 1250 gain.