These may be simple enough, but I'd to get some suggestions -
Assuming I sold my primary residence for $100K LOSS and sold one
rental property for $100K PROFIT, am I correct that:
1] If these two transaction happen in the same tax year, I pay no
capital gain tax? (i.e. primary residence and rental property gain/
loss can be combined for tax purpose?)
2] In the above case, if the rental property is owned by a single
member LLC (that's me), does it make any difference?
3] If the primary residence was sold last year, but the rental
property was sold this year, I need to pay tax on $97K this year and
spread the $97K loss over 33 years?
4] If I have to sell my primary residence and will likely have big
capital loss, but without comparable sized capital profit to realize
in the same year, what might be good strategy for tax purpose?
========================================= MODERATOR'S COMMENT:
The first assumption is wrong. The loss on personal-use property
is disallowed, so it cannot cancel other gains. No need to look at the
Is it true even if the LLC is a disregarded entity or the rental is
owned by an individual (instead of a LLC)? If it is still true, are
there any "strategies"/"smart moves" to minimize the tax? Thanks.
The strategy I can think of is to move into the house that has
increased in value, for at least two years. That way you can get the
first $250,000 (double if married) of profit on that place tax free.
Then you might be able to get some deduction on the other one if it's
turned into rental property and you still take a loss on it. But you
can't deduct your entire loss in most cases.
There is no way to gain any kind of tax benefit from the loss on the
sale of your home, no matter how many ways you ask the question.
You can defer the tax on the rental gain by doing a section 1031
exchange for another property. I'd probably go ahead and take the hit
now, since I doubt rates are going to get any lower. Unless you plan
to hold the replacement property until you die.
Thanks for all the replies. One more question: how to calculate the
cost base (for capital profit/loss calculation) if one property is
turned from residence to rental and vice versa? The two houses are
both single family houses in the area (just bought at different time).
So I don't mind moving into the one increased value and live for 2+
years and turn the existing one into rental. Is there anything might
be "interesting" in such cases?
On Feb 19, 11:34 pm, "Stuart A. Bronstein"
If you convert a property from rental to personal, the section 121
exclusion of 250k/500k is reduced. This is part of the The Housing
and Economic Recovery Act of 2008. You have to do some sort of ratio
of qualified use (where it was a personal residence) to non-qualified
use (where it was a rental). The change went into effect Jan/1/2009.
You still wouldn't get the benefit of the loss since that property's
starting point basis for depreciation and calculating gain on the
ultimate sale would be the market value at the time you converted it
to rental. See Pubs 527 and 550. For details about the dale of the
home you would convert to your primary residence see Pub 523.