Question QUESTION: I am retired and in a position to get a real estate license. Will that help me with a $200,000 loss on the sale of a beach house that I own? I can hold the property for a while if necessary. Also, I can rent the property myself. The property has been used as a personal beach house for several years and it has never been for rent.
ANSWER: In order to convert the loss on this property from a nondeductible personal loss on the sale of a personal asset to a deductible loss on the sale of a business/income producing asset you would have to convert it to a bona fide rental property.
This means it would have to be rented out at fair market value for at least a year in order to survive an IRS audit challenge.
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QUESTION: Can you refer me to an IRS publication about this issue? I expect to get audited if I claim a loss of this size when you consider that I have not been in the Real Estate business as a landlord until now.
Thanks,
John
Answer IRS Publication 17 would be a good place to start reading. It will probably refer to another related publication as well.
I would suggest professional preparation of your tax returns with this matter in mind, to 1.) ensure the transaction gets reported properly, and 2.) for audit representation should the need arise.
