Sold investment house for loss including credit card renovations - How do I prove when filing taxes?

Question

I bought an investment house and did the renovations myself on a credit card. It sat on the market for a year and I ended up technically selling it for more than I paid for it. However, when you add renovation expenses and holding costs (interest only mortgage, utilities, etc), I ended up losing $25K. How do I prove to the IRS that I sold this house for a loss?

Answer 1

I’d take this question to a tax professional. If they’re wrong, you both deal with the audit. If we’re wrong, you’re on the hook all by yourself.

My non-professional guess is that you need receipts to back up every single dime you spent.

Answer 2

Dear GTE,

             Of course if you can document the nature of your loss it can be used to reduce your taxes.

            The loss suffered is likely a long-term capital loss. It can be applied against long term capital gains to reduce overall tax liability. You need to discuss with your accountant the length of property ownership to properly categorize your loss for IRS purposes but with the information provided this appears the case. This loss is NOT deductible against ordinary income. You may also be able to carry forward your loss against future long term capital gains or in certain instances apply it against recent past long term capital gains.

           I sure hope 'EXPERT REALTOR" is more competent in her field than she is in taxation.Be careful following any free advice. That is why I recommend your seeing your own local tax accountant who with more time and information provides you with your broadest options.

          Best Wishes        

Answer 3

You can't file for a tax break on a loss on investment property, the law only covers a PRIMARY residence.

You can't deduct mortgage interest on an investment property either, nor maintenance or utilities...those are the costs of doing business.

The IRS doesn't care about your holding and and renovation costs.

Interest on a credit card is NEVER tax deductible.  

Answer 4

I hope you documented everything and saved your receipts. Submit copies of your credit card statements  and your receipts with your taxes and also discuss the issue with IRS before they come and audit you with questions you have no idea how to answer. Something like this is more often than not questioned, but in this market, I am sure they will understand.