The Loss

Picking from what was discussed in the last blog, that when someone sells a property and/or an asset, there could be a gain on the sale, where one would pay taxes on (not on the selling price), and gain is determined by subtracting the selling price from the “adjusted basis”, which is the purchasing costs, plus any improvements and/or installation costs on the sold property and/or asset, minus any depreciation claimed. So, what happens when the sale of the property and/or the asset at a loss, well the simple answer, it is deduction against income, but there are limitations.

First of all, if the property and/or asset that was sold was a “capital asset”, then the loss that could be claimed is only $3,000 per year, and any excess capital losses would be able to be carry forward until it is fully used up, with no time limitations. According to the federal tax code, a capital asset is any property and/or asset that is NOT any of the following items:

· Any inventory asset that is purchased and resold to customers;

· Accounts receivables in a trade or business;

· Depreciable business property;

· Real estate used in a trade or business;

· A copyright on a musical and/or literally work;

· Tradable financial commodities derivatives held by commodities derivatives dealers;

· Hedging transactions entered into in the normal course of business; and/or

· Business supplies
So if the property and/or assets that was sold was one of these assets, and a loss is sustained, then the loss can be full deduct against income, and not subject to the $3,000 loss limitation. So, on rental properties, for example, are NOT  “capital assets”, because a rental property is considered as either “depreciable business property” or “real estate used in a trade or business”. Thusly, losses on the sale of a rental would be fully deductible against other income sources.

So, if you think you sold some assets in 2014 (or planning to do so in 2015), and that you may selling them at a loss, please contact us at info@kayatax.com, and we would be more than happy go over the tax consequences on the loss that you may sustained, and determine if you can fully claim the loss.