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I'm looking to purchase a condo. Without getting into the details, it is likely that the wife and I will lose money on it for a portion of time. Can we treat the condo as a business, and can we write off the loss? How would we go about doing that? Would it be on a schedule C?

To complicate matters I already do some business through my own LLC.

Unless things go really bad the wife and I will never live in the condo. While it is nice, we want to retire into something a whole lot nicer. My intent is to rent it for income and/or sell at a profit.

For the short term, we will be "renting" it to my wife's grandmother at a deep discount.

  • Why are you buying it? Is it for your business? – littleadv Aug 14 '13 at 18:29
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    What do you mean by "lose money" on it? Do you expect the price to drop? Or, is the property to be rented out? You didn't say. – Chris W. Rea Aug 14 '13 at 18:49
  • Pete, without further updates from you, your question is likely to be shut down. – JoeTaxpayer Aug 15 '13 at 12:35
  • If you're renting to wife's grandmother at a deep discount you will not be able to get any tax deduction. The profits, however, are still taxable. – littleadv Aug 15 '13 at 18:58
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If it's a rental, you will write off the losses via Schedule E. You should read this document and its instructions to understand this fully. You will also take depreciation on the value of the building, not the land, over 27.5 years. If you don't understand this, search here, there are discussions that cover this.

If it's not a rental, but your home or second home, you take the interest and real estate tax off you tax via Schedule A, if you itemize. (I see the tag 'rental' but leave this line for sake of a complete answer.)

  • Its still not complete. If its for the bussiness - its a schedule C deduction. If its for personal residence, but there's a home office - its another kind of schedule C deduction. If its a residence but he's working from home for an employer - its another kind of schedule A deduction. If the OP is really interested in an answer - he can address the questions in the comment. I voted to put on-hold until he does. Sometimes, half an answer is worse than no answer at all. – littleadv Aug 14 '13 at 20:14
  • Fair enough, he tagged it rental, not business, but I respect your point. – JoeTaxpayer Aug 14 '13 at 20:42
  • Joe, after @Pete's edit your answer now is incorrect. mhoran_psprep is spot on. – littleadv Aug 15 '13 at 19:02
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You will need to see a tax expert.

Your edited question includes the line For the short term, we will be "renting" it to my wife's grandmother at a deep discount.

According to the instructions for schedule E

If you rented out a dwelling unit that you also used for personal purposes during the year, you may not be able to deduct all the expenses for the rental part. “Dwelling unit” (unit) means a house, apartment, condominium, or similar property.

For each property listed on line 1a, report the number of days in the year each property was rented at fair rental value and the number of days of personal use.

A day of personal use is any day, or part of a day, that the unit was used by:

  • You for personal purposes,
  • Any other person for personal purposes, if that person owns part of the unit (unless rented to that person under a “shared equity” financing agreement),
  • Anyone in your family (or in the family of someone else who owns part of the unit), unless the unit is rented at a fair rental price to that person as his or her main home,
  • Anyone who pays less than a fair rental price for the unit, or
  • Anyone under an agreement that lets you use some other unit.

I have no idea how this will work for Schedule C.

  • +1, This is the correct answer. This will not work for schedule C at all. The devil is in the details, and its very easy to miss that by giving "deep discount" you in fact invalidate any deduction you might have otherwise had. – littleadv Aug 15 '13 at 18:59
  • Does the forced 'personal use' noted above preclude even the schedule E? – JoeTaxpayer Aug 15 '13 at 23:16

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