Income Tax Losses from the sale of business or investment property can be used as deductions against other income, but a tax loss cannot be taken for the sale of a personal residence. All gains from the sale of property are taxable. The amount of the taxable gain is calculated by deducting the seller's adjusted cost basis from the net sales price. Adjusted cost basis is the original cost plus the cost of capital improvements less depreciation. Repairs are considered operating expenses and are deductible expenses for income and investment property.
Property taxes are also legal deductibles from a homeowner's income tax.
No other cash expenses or depreciation may be taken on a residence not used for business or income purposes. Homeowners may defer paying tax on gains from the sale of a residence if within two years they purchase a new home costing the same as or more than the sales price of the former home. A homeowner may not use this procedure more than once in a two-year period unless a move is caused by a change in employment. Investment Taxes For business and income property all expenses, including depreciation, are deductible from taxable income. A tax shelter, such as rental property, reduces the taxable income by showing a bookkeeping loss, such as depreciation.