Real Estate Loss Tax

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Real estate loss taxes are very important to many people. This can take the form in losses on property rentals on an every day property as well as losses on a sale of real estate. However there are losses on real estate that take place. This differs if you are an individual or a company. The major concern is the carry forward of these losses. If you make a loss on the sale of a property then you are able to carry those loses to apply against your earning in future years.

Real Estate Loss Taxes for Landlords

Landlords must have up to date accounting records pertaining to the following the cost basis, the income, and total expenses (normally called net income). The best way to do this is with property software that calculates this on a spreadsheet. You can easily see your net income and profit and loss with these types of software.

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In order to keep track of your real estate loss tax ensure you use:

  • The purchase price of the property in question.
  • The accumulated depreciation and annual depreciation for the current year.
  • Total rental income,
  • Total security deposits held and collected.

The expenses that you must consider are:

  • Property management fees
  • The total advertising costs incurred during the rental process.
  • Property maintenance and repair costing – inclusive of utilities, landscaping, waste management etc.
  • Property insurance expenses.
  • Returned or reimbursed security deposits.

Once this is ascertained you can quickly determine if you made a loss or a profit. If you made a real estate loss of this kind then you can carry forward those loses to apply against income until you begin making a profit and then apply that to your taxes in the next year. However this changes if you decide to sell the property.

Real Estate Loss Taxes for Investors

If you purchase a property for $x.00 and sell it for less than $x.00 then this is considered a capital loss and can be brought forward to the following year. This would be coupled with the loses that you made if you had attempted to earn rental revenue and this also ended up being an operating loss. However you must note that: the IRS limits losses from property rentals to a maximum of $25,000 per annum with further information found in Schedule E of the IRS instructions.

To actually determine a real estate tax loss you must first calculate the losses. This is

SALE PRICE – COST BASIS = Gain / (LOSS)

Cost Basis is : Purchase Price + In purchase costs (realtor fees etc.) + property improvements + selling costs (advertising, real estate agent commission) – total accumulated depreciation.

If there is the loss the IRS schedule states ‘Generally, losses from passive activities that exceed the income from passive activities are disallowed for the current year. Unused passive losses are carried forward to all future years. A similar rule applies to credits from passive activities.’ Hence you must note that you can carry forward the losses. Please note it is always best to seek professional advice in these matters. Get free real estate loss tax advice here:

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