Tax implications for selling an investment property for a loss

[Rich McCormack]

Hi BP,

I bought a townhouse as my primary residence in 2006. Moved out in 2011 and converted it to a rental unit which I recently sold in 2015. My question is about how to treat the loss for tax purposes. I have a CPA that will be doing my taxes, but I just want to get a better understanding because I read so many different opinions on the topic.

My understanding is that the rental property is considered a Section 1231 noncapital asset. The loss is classified as an ordinary loss and is 100% deductible against my earned income.  

I also understand that my basis is now the lower of my adjusted basis at the date of conversion or the fair market value at conversion. In my case the fmv at conversion was lower so this became my new basis.  I ended up with about a $60,000 loss when it was all said and done. 

Hoping that I am correct and can offset this loss against my ordinary income for 2015 as opposed to it being a capital loss that can only be offset against capital gains.  Does anyone out there have any experience selling at a loss?  Any help or guidance is much appreciated!!!

Thanks!