Can rental losses offset against the conversion of a traditional IRA to a Roth IRA?

Forum|Forum|7 years ago
June 1, 2019
7 replies
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I have a rental house that I had no income but did have expenses for the first 3 months of the year. The house was occupied but I had to get legal help to evict the tenants. After repairing damage caused by the tenants I decided to sell the rental house and it was sold for less than my basis in the house.
Can either of these losses be used to offset the ordinary income of the conversion of a traditional IRA to a Roth IRA ?
The only income I have is social security and some interest.

Best answer by TaxGuyBill

Yes, the loss from the sale of the rental would offset any other income, including a Roth conversion.

The sale of a rental is not subject to the $3000 limitation. The loss is fully deductible in the year that it is sold.

Regular rental expense losses would also be fully deductible against other income (at least they will be in the year of the sale). However, it is a bit unclear how you need to deal with the 'repairs' of the damage. If the property was not longer available for rent, they would not be deductible 'repairs'. However, you may have made some "improvements" that would increase the basis of the home.

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SweetieJean

Employee

Was it rented prior to this year?

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mmmmmm_mikeAuthor

Employee

yes it was rented for several years previously.

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mmmmmm_mikeAuthor

Employee

it has been rented for several years

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mmmmmm_mikeAuthor

Employee

I did take the depreciation recapture into account. Are the rental expenses a capital loss? Can this be used to offset the conversion?

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SweetieJean

Employee

<a rel="nofollow" target="_blank" href="http://www.nolo.com/legal-encyclopedia/can-you-deduct-your-rental-losses.html">http://www.nolo.com/legal-encyclopedia/can-you-deduct-your-rental-losses.html</a>

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TaxGuyBillAnswer

Employee

Yes, the loss from the sale of the rental would offset any other income, including a Roth conversion.

The sale of a rental is not subject to the $3000 limitation. The loss is fully deductible in the year that it is sold.

Regular rental expense losses would also be fully deductible against other income (at least they will be in the year of the sale). However, it is a bit unclear how you need to deal with the 'repairs' of the damage. If the property was not longer available for rent, they would not be deductible 'repairs'. However, you may have made some "improvements" that would increase the basis of the home.

S

SweetieJean

Employee

When you sell a rental home, you must recapture depreciation, so you may not have a loss at all.

Even if you have a capital loss, only $3,000 of ordinary income can be offset against it each year.

http://www.nolo.com/legal-encyclopedia/taxes-when-landlords-sell-rental-real-estate.html

https://www.irs.gov/pub/irs-pdf/p544.pdf