DEDUCT A LOSS WHEN SELLING INHERITED HOME? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Q: I recently inherited my deceased father’s house. It’s located in an area where housing prices have actually declined. If I sell it for less than he paid for it, can I deduct the loss? J.L.S., Schenectady, N.Y.

A: It depends. First, your basis in the inherited home is actually its fair market value on the date of your father’s death, not the date your father bought it. The tax nature of the loss depends on how you’re using the property. For instance, if you have been using the home as your personal residence, you can’t deduct any loss. If you’re renting out the property, the loss is potentially treated as an ordinary loss. However, if you are offering the home for sale, the loss is a capital loss that can offset capital gains plus up to $3,000 of ordinary income. Tip: Don’t forget to add qualified selling expenses to your basis.

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