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When to convert your main home into a rental

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. My main home is a shore house that declined in value after Sandy. If I sell it, can I claim a loss? K.A.P., Margate, N.J.

A. Not if it’s your principal residence. In that case, there’s no tax benefit for selling the home at a loss. However, if you convert the home into a rental property, your adjusted basis in the home becomes the value on the date of the conversion. If the home is subsequently sold for an amount less than your adjusted basis, the resulting loss is deductible on your personal tax return. Furthermore, you may be able to claim tax deductions relating to the rental property.

Tip: Be aware of passive activity loss rules that may limit deductions for rental property.

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