There are times when it makes complete sense to take a loss on your property. Sounds screwy doesn’t it, but it’s true!
Let me begin with I am not a Lawyer or CPA. You should always seek advice from a licensed professional in these fields. I am a designated REALTOR© in the state of California and a proud member of the San Diego Association of REALTORS.
Now, disclaimers out of the way; why would a person sell his/her property at a loss?
It’s all about taxes!
Let’s say you own a piece of property that has a tax lien levied against it. For simplicity’s sake lets say that you purchased the property for $10,000 and you sell that property for $100. You just took a loss of $9,900 and here is where that is advantageous to you. The law states that you can write that loss off against any other income from investments to an unlimited amount.
Keeping it simple, let’s say that you made $9,900 in the stock market and you are in the 30% to 35% tax bracket. This means that you’re responsible for approximately $3,000 in taxes from your investments. If you sold your home for $100 this means that you can now write off the $9,900 loss against your $9,900 gain in the stock market effectively eliminating paying the $3000 in taxes on the income from your investments.
Here’s the really crazy part, if you had no gains from investments you could write off up to $3,000 per year in W-2 income. Just by realizing the loss you would be able to take $3,000 per year against ANY kind of income. The IRS allows you to write off anything left over from your loss therefore in year 2 you could write off another $3,000, year 3 another $3,000 and then in year 4 the final $900 which would then total your overall loss of $9,900.
Again this is a very simple explanation of when it makes sense to sell your property at a loss. Certain things do need to align to make this a viable option, but it happens everyday in this country and could be an option for you. If you would like more information regarding a tax lien that has been levied on your property and you are considering selling it, then contact me via email or give me a call.
Remember always seek help from a licensed professional!