Capital Losses

• When you sell a property for less than the cost basis, this constitutes a capital loss. The cost basis is the amount you paid for the property plus any repairs or upgrades. When you sell your primary home for less than the cost basis, you do not get to count the capital loss on your taxes. If you sell a rental property for less than the cost basis, you can claim a capital loss.
  
  

Passive Losses

• When you own a rental property, you charge a certain amount of money in rent each month, which helps pay expenses and generate a profit. If you do not get a tenant in the property for a certain part of the year, the expenses could outweigh the income, which creates a passive loss. When a rental property creates a passive loss, this loss can be used to offset other income that you generate for the year.
  
  

Applying Capital Losses

• If you own a rental property and sell it for a capital loss, you get to apply this capital loss to offset capital gains that you generated in the same year. If you have capital losses, you also have the option of carrying those losses forward to the next year and applying them then. If your capital losses exceed your capital gains, you have the option of offsetting up to $3,000 in normal income with the capital losses.
  
  

Inherited Home

• If you inherit a home and then sell it for a loss, the cost basis is different than if you owned the home normally. Typically, the cost basis is based on the amount that you originally paid for the house. If you inherit a house, the cost basis changes to the market value of the house on the date of the death of the previous owner. This can impact the size of the capital loss or gain when you sell.