Loss on sale of home...not residence, not rental

[Janitor Bob]

client owns a home, but moved in with new husband many years ago. She kept the home and let her mother live in it rent-free until her mother passed away in 2012. In 2013, she sold the home.....Sold for $60,000.00 cost/basis was $80,000.

Her attorney told her she could deduct the max $3,000.00 of the loss. Am I missing something? It was not an "official" rental property...I know because I have done her taxes for many years and never included rental income and expenses.

I'm thinking no deduction for the loss.

[michaelmars]

no loss, it was her 2nd home.

[Pacun]

The attorney is categorazing it as investment (passive) property. That was wrong. michaelmars got it right.

Was she deducting Mortgage interest on Sch A?

[Janitor Bob]

There has not been a mortgage on this house for many years, but if there had been, I'm sure I would have deducted it on on her Sch A as second home

[jshtax]

Question: How do you report the sale of a second residence? Answer:

Your second home (such as a vacation home) is considered a personal capital asset. Use Schedule D (Form 1040) (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, to report sales, exchanges, and other dispositions of capital assets.

You get a loss.

[jshtax]

Now if it had been rental there could be an ordinary loss of the entire amount.

[Pacun]

Where do you report the sale of your primary home? The character of the asset is the one that dictates if the loss is allowed, not the form, correct?

I will admit that this is interesting and let's sort it out. Is the attorney correct and she will have loss for 7 years?

[David1980]

Question: How do you report the sale of a second residence? Answer:

Your second home (such as a vacation home) is considered a personal capital asset. Use Schedule D (Form 1040) (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, to report sales, exchanges, and other dispositions of capital assets.

You get a loss.

That is where it would be reported, but how much of a loss can you claim on a personal use capital asset? Whatever loss you calculate on the 8949 you would adjust to $0 with adjustment code L.

[Janitor Bob]

That is what I was thinking, David1980...Thanks for pointing me to the specific instructions.

[Jack from Ohio]

Another personal loss and no deduction. No need to report unless they received a 1099-S.