Capital loss write off for home office?

[BillR]

I am selling a house right now and I'm taking a huge hit on the sale. I'm basically selling it for $45,000 less than I bought it for AND I put in about $30,000 of improvements finishing the basement.

A loss on the sale of a personal residence can not - to the best of my knowledge - be deducted on income taxes.

However, a funny thing happened - I was talking to my brother who is a financial planner in training. He was talking to his boss about my home sale and because I keep an office at home and do quite a bit of work there there may be a way to deduct part of the loss if I have capital gains this year from other sources.

I have routinely claimed the office portion of the house for years as a write-off so that is well defined. As far as the rest of it - does anyone know if there's truth in it? It was be VERY nice to be able to use even part of that as a deduction.

[Evan]

To my knowledge, no loss can be claimed for the business. A home sold as a loss is always a nondeductible personal loss. Similarly, if you sold it for a gain, you would not recognize any part of it as a gain for the business, except when you recapture depreciation.

Your brothers thinking is probably along the lines that a portion of the house would be considered an asset of the business, seperate from that of the house. The IRS doesn't see it that way.

[OldJack]

>>quote: Similarly, if you sold it for a gain, you would not recognize any part of it as a gain for the business, except when you recapture depreciation.<<


I agree with Evan that for the year 2008 a "loss" is not allowed on a sale of an office in the home.

However as to the gain quote statement above, for years beginning in 2009 a "gain" will be taxable on the office space/proportion of the home (any nonqualified residence use) even if the residence could otherwise be excluded from taxes (see the 2008 tax law changes). Its kind of like you have 2 sales, one the office based on period of use, and one the residence. The prior depreciation taken is just considered a part of the gain that is taxed as ordinary income tax rate rather than capital gain rate.

Quote:>>Your brothers thinking is probably along the lines that a portion of the house would be considered an asset of the business, seperate from that of the house. The IRS doesn't see it that way.<<

Beginning in 2009 the IRS now sees it that way.

[vangogh]

Hey Jack. I just wanted to say welcome to the forum. I'm glad you found us and thanks for joining the community.

[OldJack]

Thanks for the welcome Vangogh!

[Evan]

OldJack -- wonderful to see you on board!

[cbscreative]

Jack, with the absense of your intro thread for now, let me also welcome you to the new hangout. I'm glad you found us.

[OldJack]

Jeez! I have never had such a welcome. Thanks guys. Looks like the old site owners shot themselves in the head.