First make sure you actually have a tax loss
The recent housing slump has reduced the value of most every form of real estate. You might be looking at loss if you have to sell a rental home any time soon. To determine if you have a tax gain or loss, you will need to compare the property’s sale price to its tax basis. The tax basis is generally your original purchase price, plus the cost of improvements (not counting expenses you’ve deducted as repairs and maintenance), minus any depreciation deductions you claimed while you owned it.
Be careful if you acquired the property in a tax-deferred Section 1031 like-kind exchange – where you swapped another property for the one you’re thinking about selling. With a 1031 exchange, you defer paying the tax on a gain from selling one property by exchanging it for another property. The gain that you defer reduces the original tax basis in the new property. This can result in a small amount of tax basis in the property that you are trying to sell. The property’s basis may be lower than you think.
Bottom Line: Make sure you know your property’s tax basis before you sell. That way you won’t be expecting a loss and instead wind up with a gain that increases your tax bill.
TurboTax can help you track your tax basis for your properties.