Can I Deduct Losses on Investment Property?
This question came up recently in a conversation. So I started asking CPA's who answered the question and sent me to the IRS website. What I found follows.
The general rule is that you can’t deduct a loss on the sale of your personal residence. If the house is “an asset that was purchased for investment purposes only, with the intention of incurring a profit and not used for personal purposes, then the loss would be deductible as a capital loss,” says Brittney Saks, who heads the U.S. Personal Financial Services Practice at PricewaterhouseCoopers.
Here is how those capital-loss rules typically work: •You can use your capital losses to offset your capital gains on a dollar-for-dollar basis. •If your losses exceed your gains, or if you don’t have any gains at all, then you can use your net loss to soak up as much as $3,000 a year ($1,500 if you’re married and filing separately from your spouse) of your wages and other ordinary income. Additional losses are carried over into future years. However, Ms. Saks points out that the taxpayer has the burden of proof to show the intention and correct classification of the property.
For more details, see the Internal Revenue Service website, and type “capital gains and losses” in the search box. That's where I went for the answer on advice from my CPA.