Gyroscopic Investing

This is a new one to me...Ebay now taxes sales on used goods into almost every state...

Since when are used goods between private sellers taxed??? Do people pay taxes at garage sales now?

Yes, I got a 1099 from PayPal for 2020 for a few things I sold. I gave my CPA my cost basis showing that I sold them at a loss.

Sales tax has been collected on ebay for about a year, it seems. I don't know if it's for all 50 states or just some of them. Amazon too. I have to think this is a huge gain for the states.

You are right Tom, we all need to pay more taxes, from every nook and cranny of the economy. This weekend I'm going to be taking photos of garage sales in my town, and mailing them to the state sales tax dept. It's time consuming but somebody needs to do it so these cheaters can be made examples of.

If you sell at a loss is it a tax write off?

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm
If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

yankees60 wrote: ↑Tue Apr 27, 2021 9:00 am

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

So if you've got a house you want to sell, and it's declined in value, you can rent it out for a little while (a year? a day?) and then claim the entire loss as a business loss?

Xan wrote: ↑Tue Apr 27, 2021 10:52 am

yankees60 wrote: ↑Tue Apr 27, 2021 9:00 am

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

So if you've got a house you want to sell, and it's declined in value, you can rent it out for a little while (a year? a day?) and then claim the entire loss as a business loss?

Disclaimer: IANAA; check any of this with Vinny first.

Theoretically one could rent it out for a few weeks or months and then claim it as a loss; this would likely be a short-term capital loss, though, and not a business loss or an ordinary loss. If I was planning on doing this and wanted it to hopefully stand up on audit I'd do it for at LEAST a few months. Also, in this case it would likely be subject to the $3K per year deductibility cap on capital losses.

If one rented it out (or at least tried to rent it out....i.e. it didn't have to be continuously tenanted but it did need to at least be offered to prospective tenants--say by advertising in a local paper--and during at least part of this time there had better be a rent-paying tenant in the house....and in no case should one live there themselves during the period it was supposedly a "rental property" nor should they use it as their own personal residential address when filing taxes) for at least a year and a day then yes, one could theoretically claim any loss on sale as a Section 1231 loss which would be a business loss/ordinary loss fully deductible against ordinary income.

There are also special recapture rules that will convert certain Section 1231 gains (sale of Section 1231 property that would ordinarily be capital gains....including long-term gains if held more than a year) into ordinary income in order to recapture some/all of the Section 1231 losses if the sale of said Section 1231 property occurs within a five year window of the sale that resulted in the Section 1231 ordinary loss as described above.

Finally, there are also somewhat complicated rules under TCJA 2017 that limit certain ordinary/business losses for single filers (at up to $250K of loss per year) and married filing jointly filers (at up to $500K of loss per year) and require that said such losses in excess of these amounts be carried forward as NOLs (net operating losses) which are then subject to the "80% of the year's current income" limitation (i.e. if you had $100K of NOL carried forward from the previous year and your ordinary income was $100K for the current year you could only offset $80K of your income with the NOL and would have to carry the remaining $20K of loss over to offset some of next year's income after that).

Xan wrote: ↑Tue Apr 27, 2021 10:52 am

yankees60 wrote: ↑Tue Apr 27, 2021 9:00 am

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

So if you've got a house you want to sell, and it's declined in value, you can rent it out for a little while (a year? a day?) and then claim the entire loss as a business loss?

If the residence was used as a primary residence for two of the prior five years, it will be treated as a personal residence for tax purposes hence no capital loss deduction but you also get the capital gain exclusion which is what most people want.
But your example is where you're seeking deduction of a capital loss, therefore the first thing is to rent it long enough so the five year look back will not test as a personal residence, so more than three years. The second thing to know is that your basis will be the FMV of the home at the time of conversion into an investment property, not the original acquisition cost. This would also be your basis for depreciation. If you did this, I think it would be ideal to obtain an appraisal as of that date, but some people are comfortable with internet comps like Zillow.

Vinny is the local expert, so I hope he will elaborate or correct my information if necessary.

glennds wrote: ↑Tue Apr 27, 2021 12:51 pm

Xan wrote: ↑Tue Apr 27, 2021 10:52 am

yankees60 wrote: ↑Tue Apr 27, 2021 9:00 am

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

So if you've got a house you want to sell, and it's declined in value, you can rent it out for a little while (a year? a day?) and then claim the entire loss as a business loss?

If the residence was used as a primary residence for two of the prior five years, it will be treated as a personal residence for tax purposes hence no capital loss deduction but you also get the capital gain exclusion which is what most people want.
But your example is where you're seeking deduction of a capital loss, therefore the first thing is to rent it long enough so the five year look back will not test as a personal residence, so more than three years. The second thing to know is that your basis will be the FMV of the home at the time of conversion into an investment property, not the original acquisition cost. This would also be your basis for depreciation. If you did this, I think it would be ideal to obtain an appraisal as of that date, but some people are comfortable with internet comps like Zillow.

Vinny is the local expert, so I hope he will elaborate or correct my information if necessary.

Indeed, the basis for depreciation (and for determining how much--if any--loss there is on the sale when you do sell the rental property) is actually either the LESSER of:

1) the adjusted basis on the date of conversion, or (2) the property’s fair market value (FMV) at the time of conversion (i.e. the value on the date it was converted, not the value when you bought it)

Adjusted basis is the cost of the property plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.

After converting it to a rental property the tax basis treatment IIRC is if the property is sold at a gain the basis is the original cost plus amounts paid for capital improvements, less any depreciation and casualty losses taken. OTOH, if you sell the (now-rental) property at a loss the basis is the lower of the property original cost or the fair market value at the time it was converted from a personal residence to rental property.

I couldn't find anything specifically saying that the personal residence tax treatment test (2 of 5 years) applies for the purposes of determining whether a property will be considered rental property or not for the purposes of whether or not one can avail oneself of the loss deduction on a sale of rental property. Section 121 just specifies that the person (or person/s if married) has to have lived in it at least 2 out of the proceeding 5 years as their primary residence in order to avail themselves of the $250K/$500K exclusion on the gain; it also (for post 1-1-2009 sales) requires them in certain cases to allocate any gain between qualified use (as a personal residence) and nonqualified use (say, as a rental property) and therefore would make at least some of the otherwise excludable gains taxable; see https://www.merriman.com/wealth-preserv ... his-first/ . This portion of the tax law was basically designed to prevent people from simply moving into a rental property for two years and a day as their primary residence in order to convert taxable gains into tax free ones (and thus follows in the footsteps of the "after 5-6-1997" rule that any depreciation recapture gains are not excludable under Section 121's $250K/$500K exclusion....another law designed to try and thwart homeowners from using--some might say abusing--section 121 to convert taxable recapture or taxable gains into untaxable personal residence capital gains). But again, this applies to a situation where the person is converting a rental property to a personal residence, not the other way around (personal residence to rental property.....since that is what we are discussing here) and also (as written) seems to apply to treatment of gains (and whether those gains are excludable), not of losses.

Are there any TAMs, PLRs, FSMs, or Tax Court administrative law rulings that say otherwise (regarding whether one has to have lived in it as a personal residence for less than two of the proceeding five years otherwise one cannot take advantage of any rental property loss treatment even if the house was rented out for at least a year or more before one sold it and took the loss) than the above?

For what it's worth I know of four people who (in the time period from 2009 to early 2014), having bought properties at the 2006-07 height of the boom/bubble, did the "convert to a rental for a year or a little bit over a year, sell at a loss, and take the Section 1231 ordinary loss" thing (incl one accounting teacher!) and none of them were ever audited or penalized (and three of these people--including the accounting teacher--were shall we say....umm, rather "generous" to themselves when deciding what the FMV was when they converted it to a rental property i.e. they decided the FMV was a number that was a heck of a lot closer to the purchase price than to the actual FMV at the time).

D1984 wrote: ↑Tue Apr 27, 2021 5:28 pm Indeed, the basis for depreciation (and for determining how much--if any--loss there is on the sale when you do sell the rental property) is actually either the LESSER of:

1) the adjusted basis on the date of conversion, or (2) the property’s fair market value (FMV) at the time of conversion (i.e. the value on the date it was converted, not the value when you bought it)

Adjusted basis is the cost of the property plus amounts paid for capital improvements, less any depreciation and casualty losses claimed for tax purposes.

After converting it to a rental property ..............."

D1984, I will defer to you. Thank you for the detailed information and the research you have done.

glennds wrote: ↑Tue Apr 27, 2021 12:51 pm

Xan wrote: ↑Tue Apr 27, 2021 10:52 am

yankees60 wrote: ↑Tue Apr 27, 2021 9:00 am

tomfoolery wrote: ↑Mon Apr 26, 2021 11:15 pm

doodle wrote: ↑Mon Apr 26, 2021 9:09 pm
If you sell at a loss is it a tax write off?

I would suggest asking Vinny because he’s an accountant but he’s not the kind of accountant most people think of when they hear that word.

I’m no accountant, not even the kind Vinny is, but it’s my understanding you can only write off losses against gains if it’s an actual business. And the IRS doesn’t like you to claim losses if it’s not a real business.

You are correct on ALL counts!

"A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible."

So if you've got a house you want to sell, and it's declined in value, you can rent it out for a little while (a year? a day?) and then claim the entire loss as a business loss?

If the residence was used as a primary residence for two of the prior five years, it will be treated as a personal residence for tax purposes hence no capital loss deduction but you also get the capital gain exclusion which is what most people want.
But your example is where you're seeking deduction of a capital loss, therefore the first thing is to rent it long enough so the five year look back will not test as a personal residence, so more than three years. The second thing to know is that your basis will be the FMV of the home at the time of conversion into an investment property, not the original acquisition cost. This would also be your basis for depreciation. If you did this, I think it would be ideal to obtain an appraisal as of that date, but some people are comfortable with internet comps like Zillow.

Vinny is the local expert, so I hope he will elaborate or correct my information if necessary.

Again. I am NOT that type of accountant.

Most of my career has been being the main financial person for an organization / business. Not preparing personal tax returns. When I did work for a CPA firm, I did more corporate returns than personal returns.

At this point my main tax focus is solely on items that directly relate to me. If they have no applicability to me then I do not pay that much attention to them.

On this issue both you and D1984 (especially) are way, way ahead of me.

yankees60 wrote: ↑Tue Apr 27, 2021 9:32 pm

glennds wrote: ↑Tue Apr 27, 2021 12:51 pm
Vinny is the local expert, so I hope he will elaborate or correct my information if necessary.

Again. I am NOT that type of accountant.

Most of my career has been being the main financial person for an organization / business. Not preparing personal tax returns. When I did work for a CPA firm, I did more corporate returns than personal returns.

At this point my main tax focus is solely on items that directly relate to me. If they have no applicability to me then I do not pay that much attention to them.

On this issue both you and D1984 (especially) are way, way ahead of me.

I just meant Vinny is the local expert, in the general and philosophical sense. All areas of life. No limits.

glennds wrote: ↑Tue Apr 27, 2021 9:38 pm I just meant Vinny is the local expert, in the general and philosophical sense. All areas of life. No limits.

Vinny is the master of his domain.

To put it in Democrat-terms, it's when evil landowners like Donald Trump pretend their property is worth less so that they can pay fewer taxes.

I think I may have only noticed it over the last month? Maybe that is because they were large purchases - two cameras.