Can investment/rental property losses on sale offset active income

Forum|Forum|2 years ago
May 26, 2023
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I have an investment property currently rented. I am not a real estate professional and have a regular W2 job. The investment property is held for more than a year. In case i sell the property at a sale price lower than purchase price, can the loss be used to offset my W2 income? My CPA says passive losses can offset only passive income but i came across section 1231 losses https://turbotax.intuit.com/tax-tips/rental-property/selling-rental-real-estate-at-a-loss/L2RKgClm4 . I was reading may be the loss can be 1231 loss and may offset active income but did not have clarity. Thank you for answering my question!

Best answer by Anonymous_

A loss from the sale of rental real estate would be treated as an ordinary loss (i.e., Section 1231 provides that a loss on the sale of property within its purview is treated as an ordinary loss while a gain on such property held for longer than one year is treated as capital gain).

Anonymous_

Employee

@roadrunner5 wrote:

In case i sell the property at a sale price lower than purchase price, can the loss be used to offset my W2 income?

Yes, that loss could be used to offset your W-2 income, but in order to have a loss, you would have to sell at price lower than your adjusted basis (which would ordinarily be your purchase price plus improvements less accumulated depreciation).

roadrunner5Author

@Anonymous_Thank you very much for the answer! Do i have to be a real estate professional to claim the loss (since it is passive loss) on my W2 income? Or would the loss be classified as section 1231 loss to offset any type of income. Thank you in advance!