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Subject:  Questions on rental real estate loss Date:  2/9/2009  3:42 PM
Author:  EarlyToRise Number:  104405 of 129299

We lost money renting (and owning) my wife's condo that we sold in 2008. I would like to be sure that I'm making the most advantageous tax decisions. All comments appreciated; numbers rounded:

Adjusted basis: $180k
Sale price: $160k
Selling costs: $5k
Depreciation: $10k

Net Gain/Loss: $160k + $10k - $180k - $5k = -$15k

The condo was rented for 24 months, beginning in mid-2006 and ending in mid-2008, and was available for rent for an additional 2.5 months in 2008 before we decided to only offer it for sale. The condo was my wife's primary residence for 33 of the 60 months prior to the sale in September 2008.

We carried forward losses of $5k in 2006 and $10k in 2007 because our AGI was too high for passive losses. The loss in 2008 was another $10k, for a 3-year total of a $25k loss on our 2008 Schedule E.

1. Since we lost money on the sale, even after recapturing depreciation, can/should we treat the sale as the sale of a rental property? Would that allow us to deduct the $15k loss on the sale? Or must we treat it as the sale of a primary residence, since it qualifies as such, even though we have no gain to shelter?
2. I used the regular straightline (RSL) depreciation method. I can't seem to find a side-by-side calculator to compare the 4 depreciation options. Since (seemingly) the more depreciation, then the more I can deduct, would any other method of calculating depreciation create a higher total?

Basically, I'm trying to figure the right way to have the $15k loss be a deduction from our 2008 income, rather than just vanishing into the ether. Any suggestions are much appreciated!

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