Author Topic: Loss on Home Sale / Any Way to Mitigate?  (Read 5654 times)

Forcus

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Loss on Home Sale / Any Way to Mitigate?
« on: April 02, 2014, 11:32:57 AM »
Hey guys,
We are going to take a bath on selling our home when we put it up for sale. We bought at the peak, and paid about $104.9k. We've pumped maybe $20k in to fixes and upgrades. I would hazard a guess that its actually sale price is around $75-80k. While not nearly what others have lost I wasn't sure if there was any way to mitigate this loss through taxes, etc. My gut feel and initial research says no - we aren't incorporated, weren't using it for business, and even though we could be taxed for profit on sale, there is no such reciprocal for loss. But, just wanted to confirm.

Rebecca Stapler

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #1 on: April 02, 2014, 11:38:23 AM »
Could you wait it out and not sell yet?

Forcus

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #2 on: April 02, 2014, 11:47:14 AM »
Could you wait it out and not sell yet?

What do you mean - wait til the market recovers a bit before moving out / selling? Not in this case. We already bought / live in our new house (since January). Thie old house is an hour away from our new house, in an area with depressed values and a fair amount of homes on the market. I did think about renting it out but it would be a negative return (probably by $750/mo and with all the issues of having renters) and I do not want to be a landlord at this point in time and with this house (it's older and while I've taken care of the big stuff it will always have stuff that needs done). Right now it's costing me about $1500/mo with little equity in return so it will be a big relief to list it by end of this month and hopefully sell it before end of summer. I've made piece that while I'm not going to have to bring money to the table at closing, I'm also not going to walk away with a check either. I just want to see if there is any way to minimize the damage after the fact, on the loss.

Rebecca Stapler

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #3 on: April 02, 2014, 11:50:13 AM »
Ah, gotcha. If you're already out, then that's that. It sounds to me like it's gotta go -- better to cut it off now than have it suck out more money while you rent it.

I can't think of any way to mitigate the loss, since you're not underwater.

Cassie

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #4 on: April 02, 2014, 05:16:09 PM »
You might want to talk to a CPA to see if you can claim insolvency on your taxes. If you can this will save you some $.  WE were able to one year for a similar reason but hired a CPA to make sure it was done correctly.

Roland of Gilead

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #5 on: April 02, 2014, 05:56:18 PM »
If it makes you feel any better we live in a better market (near Seattle) and will probably take a $50,000 bath on a $300,000 house that we put $40,000 into over the past decade.

Houses suck, I never want to own one again.

CarDude

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #6 on: April 02, 2014, 06:05:12 PM »
Cut your losses and learn your lesson. Let your current home be the one you either die or retire in, and you'll be guaranteed not to take a hit.

bikebum

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #7 on: April 02, 2014, 07:31:42 PM »
How about you look into renting it out, rather than selling it? Or rent it out for a while and sell it when/if the market goes up?

Thegoblinchief

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #8 on: April 03, 2014, 06:29:48 AM »
$1500 a month sounds high for a house to idle. Are you sure you did your math right or are taxes just that high?

$20K isn't a huge capital loss to take, assuming you can afford it. If renting doesn't even approach break even, I'd probably take the bath too. Midwestern house markets seem really slow to recover.

In my part of MKE, values are still going down. I'm -44K on a house purchased at $122K. Thankfully I don't need to sell anytime soon.

serhomeslice

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #9 on: April 03, 2014, 07:15:21 AM »
A house is an investment and you should be able to write off the loss(difference between what you bought it for and what you will sell it for).  You won't get it all back, but you'll get back a percent. 

...Never mind.  Did a little research and you can't write off the loss.  Bummer.
« Last Edit: April 03, 2014, 07:18:55 AM by serhomeslice »

Forcus

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #10 on: April 03, 2014, 11:35:46 AM »
$1500 a month sounds high for a house to idle. Are you sure you did your math right or are taxes just that high?

$1000 / mo for home loan (my interest rate is high, taxes are high and for various reasons I did not refinance)
$350 / mo for utilities (inefficient older home)
$150 / mo for maintenance and other (this is actually probably low)

Thanks all for the feedback, you are confirming what I suspected.

DoubleDown

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #11 on: April 03, 2014, 01:55:42 PM »
That sucks, sorry to hear you're looking at a loss. It sounds like you're not underwater on your loan, so short selling or foreclosing is not an option (and I would only consider that if the house is owned in a non-recourse state).

Don't have any real advice other than not to be hard on yourself or lament it too much. We've likely all had investments or assets that have gone up, and gone down. You likely got a decent deal as a buyer on your current house, potentially offsetting the losses on the home you're selling now (particularly if you moved up). For example, if you sell this house for $20,000 less than you paid for it at the market peak, but got your current house $20,000 cheaper than it would have been at the market peak, you're okay. So if you think about it that way, you didn't really lose anything, at least not assuming your current house goes up in value over the years -- you'll recover the loss through appreciation of your current house. Even if there's a loss, it will likely be a blip on your overall path to building your net worth.

Willbrewer

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #12 on: April 03, 2014, 04:14:03 PM »
My accountant just finished my 2013 tax return today. I sold a house last year (my residence) and took a 15% loss on it. I was told that losses on your primary residence can't be written off, but if it were a rental, they could have been. You might talk with an accountant to see if you can convert it to a rental for a while, then sell it. It's possible you may be able to then write off the loss that way.

chasesfish

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #13 on: April 03, 2014, 05:17:18 PM »
I'm enjoying a $50,000 bath right now, but I did get to enjoy my house for 7 years.

Glad I pay down a mortgage quickly

Cassie

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #14 on: April 03, 2014, 06:22:43 PM »
We converted ours to a rental and it worked out for us when we had to short sale. We live in a recourse state but had the lender put it in writing that they would not come after us.

frugalmom

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Re: Loss on Home Sale / Any Way to Mitigate?
« Reply #15 on: April 04, 2014, 11:00:09 PM »
Hey guys,
We are going to take a bath on selling our home when we put it up for sale. We bought at the peak, and paid about $104.9k. We've pumped maybe $20k in to fixes and upgrades. I would hazard a guess that its actually sale price is around $75-80k. While not nearly what others have lost I wasn't sure if there was any way to mitigate this loss through taxes, etc. My gut feel and initial research says no - we aren't incorporated, weren't using it for business, and even though we could be taxed for profit on sale, there is no such reciprocal for loss. But, just wanted to confirm.

If it is advertised for rental or rented for one year and one day it is no longer considered your primary residence and is now an investment property.  You get the purchase price paid plus any improvements as your cost basis.  So in your case roughly $125K.  After your rental period when you sell it you can take any losses as a capital loss and potentially carry over for future years assuming you have not exhausted your depreciation.  All expenses during the rental period offset the rental income.  The IRS will basically allow you to lose $25K a year as a landlord.

There have been tax years I have been a VERY bad landlord.

I'd rent it for a year, and then sell it.  Talk to your tax advisor and get a realtor to give you a rental price and see where you net out.

Being a landlord can suck, but if you want to capture the loss, I'd just rent it to someone really handy for a reduced rate with the understanding that repairs are on them.  Pay for the materials, but they can do the labor.  Depending on circumstances it can work well. 

I am in IL and have done similar things a fair bit.  PM if I can answer any questions