Tax Advice - Selling Failed Investment for Loss

[Trevor Dominique]

Hey BP,

Reaching out to get some advice from a tax strategy standpoint. 

I currently have 13 units and am looking to aggressively grow my business over these next couple years. I have one property that was a complete failure from day one. I feel like I have two options here:

Rent the property:

Downside: Significant capital tied into a deal that loses about -$200/month in negative cash flow. Upside: Area is growing rapidly, so my losses will be mitigated over time. 

Sell the property at a large loss:

Downside: Large loss shown on my tax return, potentially impacting ability to get future financing; Upside: I can redeploy some capital into higher performing projects immediately; 

After running the numbers on my side, it feels like it makes way more sense to sell the property at a large loss. Here is my justification....let's say I have $350k into this property and when I sell it, I net $300k, so I take a $50k loss. Lets say if I hold the property as a rental, it is a 2.5% cap rate. Now, let's say I sell this and purchase a property for $300k that is an 8% cap rate. If I add the $50k in losses, maybe this 8% cap rate goes down to 6% (I realize it would not actually work this way from an accounting perspective). So essentially I just repositioned $350k in debt from a 2.5% cap rate to a 6% cap rate, which is why I am leaning towards taking the loss. 

Worth noting, the debt behind the property I want to sell is a private credit line that is not attached to the property itself. So I can reuse the debt however I want to. T

Final question, and I a IMAGINE there is no legal options here but want to ask anyway. Are there any strategies so that when I sell I can keep the losses from appearing on my personal tax return? 

Thanks everyone. 

Trevor

[Holly Chan]

@Trevor Dominique still just the $3,000. It only offsets other capital gains and not ordinary/rental income. So you'd have $10,000 of rental income and $3,000 of capital loss.