Taxpayer purchased residence property in Nov 2005. In Feb 06 they purchased a new residence. This became their main home. Now in Oct 2010 taxpayer has sold 05 property. They have never rented out this house and have not lived in it for all these years. The property sold for a lost. Question is can taxpayer take the lost. Is this porperty still considered personal residence? Please help!!
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No, they cannot deduct the loss. It would have to be an investment or rental property to deduct the loss. Gains could be excluded if it were their principal residence that they used/lived in for 2 out of the last 5 years from the sale date. See Treasury Regulation 1.121-1 (http://www.taxalmanac.org/index.php/...,_Sec._1.121-1) for the definition of principal residence.Michael -
Not deductible
But the sale of a personal residence at a loss nevertheless has to be reported on Sch. D.
BMKBurton M. Koss
koss@usakoss.net
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The map is not the territory...
and the instruction book is not the process.Comment
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Like Koss said, if you receive a 1099-S, you have to report the loss on the Schedule D (see Pub 17, page 111). Make sure you override column (f) with "0" to remove the loss.MichaelComment
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Just playing devil's advocate...............
Why wouldn't it now be considered investment property? If it is not their personal residence, then it must have been held for all this time in order to try to sell it at a profit.
The property would have to have some kind of character......what would it be?
Linda, EAComment
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Did they ever stay in it for personal use during the past few years? If so, that would indicate it was a vacation/second home rather than an investment property.
However, if they did have the documentation to prove they converted it into an investment property at some point in the recent past (highly unlikely), then their basis would be the lesser of FMV or their adjusted basis of when it was converted.MichaelComment
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And even if you do not receive a 1099S.Originally posted by MilTaxEA View Post
Reminds me of clients who say that the person at the bank said you don't have to report interest if it's less than $ 10.ChEAr$,
Harlan Lunsford, EA n LAComment
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Because.... Not having used it as a personal residence does not mean it wasn't personal property. To be investment property it would have to have been rental property. What we dont' know here is whether or not taxpayers spent any time at all, even one day, in the house.Originally posted by oceanlovin'ea View PostChEAr$,
Harlan Lunsford, EA n LAComment
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Pub 523, Page 20:
Do not report the 2010 sale of your main home on your tax return unless:
(1) You have a gain and do not qualify to exclude all of it,
(2) You have a gain and choose not to exclude it, or
(3) You have a loss and received Form 1099-S.
[...]
"If you have a loss on the sale of your main home for which you received a Form 1099-S, you must report the loss on Schedule D even though the loss is not deductible."
Many times a 1099-S is not sent out if the sale price is below the exclusion amount. It is up to the taxpayer to determine if the any of the sale is reportable (see above bullets).Last edited by MilTaxEA; 04-05-2011, 08:30 PM.MichaelComment
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ChEAr$, is there something that I am missing or misunderstanding in the above quote? I always report house sales anyway just for documentation purposes and to prevent any CP2000s, but following the rules above it isn't always necessary.MichaelComment
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I always report House/Home Sales as well - I just never trust the IRS computers, and try to second guess those CP 2000 notices that we "could receive 18-4 months later.
Now we are having to deal with the 1099R reports for Rollovers - Code G - I am having some in 2010 report and some not report.
Wish everyone would be on the same level playing field. We know that IRS is not, as we can see them on transcripts on efile, if they ever are current again.
SandyComment
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Huh? Where did I advocate not reporting?Originally posted by MilTaxEA View Post
Certianly not going to ignore a 1099S form. Had one just the other day and the return had to be sent in the old fashioned way since my software wouldn't permit efiling.
But many advocate not reporting in the absence of a 1099S if the gain is under the 250/500,000 mark.ChEAr$,
Harlan Lunsford, EA n LAComment
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Sorry, I didn't write the question clearly. I meant to ask why you though it was required to report a home sale when there is a loss and no 1099-S was issued. The quotes from the pubs seem to indicate that is not required (even though most of us report the sale anyway).MichaelComment
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There's more than one way for real estate to be investment property - flipping houses, for example. Indeed, if you're obviously flipping a house, and choose to sleep in it so that you can be more efficient in your repair work (while maintaining a residence elsewhere), I don't think that would turn it into personal property.Originally posted by ChEAr$ View Post
In this case, I don't think they can prove that it was an investment property. There's nothing that would indicate that they held onto it with an expectation of making a profit.Comment
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Do NOT report unless required
Originally posted by MilTaxEA View Post
I agree with your position.
The IRS rules, cited above, plainly state when not to report a home sale.
A single client recently sold a home for a cost roughly $25k above the overall exclusion amount. Since it was very unlikely she bought that house for anywhere near $25k, no sale was reported anywhere on the tax return.
With or without a Form 1099-S, I would have done it the same way under the same circumstances.
Many attorneys also take the simple way out and prepare a Form 1099-S for everyone.
FEComment
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