Sale of Rental Property Need confirmation

[arlo]

My client told me today that she sold her residential rental property at a loss.
In checking Tax Book it looks as though the loss is deductable
on Part I of form 4797 and it is not limited.
I just wanted to confirm if I am reading it correctly and not overlooking
anything. Thanks

[rkhan71]

Yes...

All things being equal, it would be deductible as a loss via the 4797 which would carryover to the front of the 1040. But do not know his or her particular situation. Make sure of proper documentation and such for calculating the info on the 4797.

Ray

[Lion]

Ask lots of questions. Related party? All depreciation taken into account?

[David1980]

One thing I'd watch out for is if this was converted to rental at some point. If converted property is sold at a loss the basis for recognition of loss is the lesser of adjusted basis at time of conversion or FMV at the time of the conversion (TTB 6-3). So you could spend $1,000,000 for a home that you used as your personal home, convert it to rental when it's worth $500k, and sell it at $500k and not have a deductible loss.