Thanks Steve Harney of Keep Current Matters
We recently posted Real Estate: Today’s Golden Opportunity comparing the current housing market to the market for gold about a decade ago. Some commented on the fact that you can’t compare gold to real estate as an investment as gold is a very liquid asset and it would take more time and effort to sell a house. We were not trying to make the case for real estate vs. gold as an investment in our blog. We were just showing that all investments go through cycles and that the best time to buy any investment may be when everyone is saying not to.
However, since the subject of comparing real estate to other investments has come up, let’s take a closer look. There are two major advantages to investing in a home of your own rather than another option:
You Can’t Live in Your IRA
When you buy your own home you are not taking available dollars away from another investment. You are replacing one housing expense (rent) which has no potential for a return on investment with another (mortgage payment) that does give you an opportunity for a return. We realize that there has been research showing that over the last 30 years renting has been less expensive than owning. That research also says that if you invested the entire difference between the rent payment and mortgage payment you may have done better financially. There are two challenges with this conclusion:
As the end of the year is only a few days away I wanted to share some information with you that some other agents and I were discussing that our clients were dealing with here down in South Florida. So I asked one of my Tax experts to share some information with you about deducting losses on a Real Estate sale.
Due to the weak real estate market, many homeowners are forced to sell at a loss, if they are able to sell at all. But does this dark financial cloud have a silver lining? Can a homeowner deduct a loss from income taxes?
Unfortunately, the answer to that question is no, as a loss incurred on the sale of a personal asset such as a personal residence is not deductible.
But there is a way to deduct a loss on the sale of a home: You can convert it to a rental before you sell.
This requires you to rent out the home to someone who is not related to you for a reasonable market rent. Moreover, you’ll have to report the rental income you receive to the Internal Revenue Service — but you may have little or no taxable rental profits due to depreciation and other deductions for rental expenses.
When you convert your residence into a rental, you convert it from a personal asset to an investment asset. Losses on the sale of investment assets are tax-deductible.