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Can I Write Off Losses From a Rental Property Sale?

Question: I recently sold a rental property for less than half of what I paid for it. Can I write off the loss?

— Lillie Lewis, Memphis

Answer: The short answer is yes—but with a catch. The Internal Revenue Service lets you write off the difference between the original value of an asset (its “cost basis”) and the selling price as an ordinary loss. But that cost basis isn’t simply what you originally paid for the property; it also includes depreciation for each year that you owned it, whether you claimed it on your return or not, says Ted Sarenski, president of Blue Ocean Strategic Capital in Syracuse, N.Y. To figure the depreciation, he says, divide the original purchase price by 27.5 (the number of allowable years of depreciation for residential real estate), and multiply that by the number of years you owned the property.

NOTE: A version of this answer that ran in SmartMoney magazine incorrectly called the loss a capital loss.


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