While you clearly have an economic loss, tax rules prevent you from deducting the decline in value from your $120,000 purchase price to the value at the time you converted the condo to rental property. What’s more, depending on the amount of depreciation claimed on the condo from the time of conversion, you may actually have a tax gain (even though you have a financial loss). Talk with a tax pro to run the numbers in your situation.
A business method of accounting requiring income to be reported when earned and expenses to be deducted when incurred. However, deductions generally may not be claimed until economic performance has occurred.