Real Estate Losses and Homeowners this Tax Season

Many of us in Michigan have experienced the pain of seeing our home values go up and down within the past decade.  If you are a homeowner who recently sold real estate at a loss, you may be wondering if you can count the real estate loss as a write off on your taxes.  Under tax law, residence is considered personal property so for the most part the answer is no.

Losses from real estate can generally only be used to offset income from “passive activities” which could be from any rental activity OR any business in which the taxpayer does not materially participate, it can not be used to offset their “non passive” activities which would include businesses in which the taxpayer works on a regular and continuous basis.   Any remaining losses must be carried forward, unless you are a real estate professional.  Real estate professionals also must pass a “material participation” test in order to use passive losses to offset non-passive income.  If you are not a real estate professional, you can qualify for an extra tax break if you actively participate in rental real estate and meet certain income requirements.

For more information please contact our CPAs in the Real Estate Sector at 248 952 0200.






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