Invest

how to invest

Live

career, food, travel

Save

saving, credit, debt

Protect

insurance, security

Retire

401K, IRA, FI, Retire

Home » Home Ownership, Taxes

Are Losses on the Sale of a Home Tax Deductible?

Last updated by on 18 Comments

I recently covered situations in which you’d have to pay real estate capital gains taxes, which prompted a few people to ask me about real estate capital losses.

The basic question is “If you have to pay taxes on capital gains from the sale of property in certain situations, are there also situations in which you can claim real estate losses as a tax deduction?”. To answer that question, let’s first look at equity investments versus real estate.

Real Estate Gains vs. Capital Losses: The Same as Investments?

A capital gain on the sale of a home is essentially selling your home for more than you bought it for. A real estate capital loss is selling your home for less than what you originally bought it for.

With equity investments (stocks, mutual funds, etc.) you are able to deduct your capital losses from your taxable income and you must pay capital gains taxes when you make gains on your sale. However, the same rules do not apply to gains and losses on the sale of primary or secondary residences.

Are Losses on a Home Sale Tax Deductible?

According to the IRS Publication 523, “A loss on the sale of a home is not tax deductible”. Check out page 5 of the publication for more specifics. Unfortunately, for anyone who was seeking a silver lining when selling their home for a loss over the past few years, it won’t come in the form of a tax deduction.

Losses on Investment Properties

There is an exception. If you sell an investment property for a loss, your loss may be deductible against your income. Investment properties are treated very similar to equity investments in this regard. You will need to fill out IRS form 4797 in order to claim your losses.

Related Posts:

home sale loss tax deduction


About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


18 Comments »
  • Natalie says:

    This only applies to a loss on your primary or secondary residence. You can deduct the loss on a rental property. Use form 4797.

  • Samurai says:

    Thnx for the info. What constitutes and investment prop? I have a vacation prop that is an investment mix use as it’s rented out for half the year.

    Can I deduct on this prop?

    Thnx

  • Sounds good. I’ve definitely been paying taxes. The prop is in a rental program and there’s a official income report that goes to the IRS.

    Owning a 2nd home is quite a luxury, and it’ll be good to take educate myself about all the various tax options. Thnx for reminder.

  • Diana Pola says:

    What about a home that was inherited? I inherited a home two and a half years ago and it is now in escrow. The sale price is $25,000 less than the cost basis. It has been vacant the entire time I have owned it. Are there any tax advantages for this situation?

  • Steve says:

    I purchased a property as a primary residence in Jan-2005. I moved out and rented the property out from July-2008 through Sept-2010. The property has been vacant and listed for sale since then. The cost basis is about 82K higher than the offer I have to sell it.

    I have paid income tax on the rental income, so no worries on that front.

    When I file my 2010 taxes, am I able to deduct this entire 82K loss against my income for 2010 (minus previous depreciation from 2008 and 2009) using form 4797 or is there a limit to the amount I am able to deduct per year?

  • Natalie says:

    @Diana- you can count the home as a second home. As such it is a capital asset and you can deduct up to 3k per year.

    @Steve- Normally you can deduct the loss against your income. However I believe that you are limited to 25k more than income as NOL. Depending on your income you may not hit this limit. When doing your taxes don’t forget to recoup any depreciation you have taken.

    As always, consult your tax professional for details as they apply to your specific situation.

  • Barb says:

    My husband and I bought a condo for my dad to live in. We paid cash, so the only expenses were for taxes and condo fees. After he passed away, we sold it for a loss. Is this loss deductible?

  • GeoffMiami says:

    http://www.irs.gov/publications/p544/ch01.html#d0e175

    and pulication 544 goes into detail, but basically there is no way a loss on a primary residence can help reduce your tax bill.

    If it was partially used and declared for rental, the rental costs and any depreciation and changes could get included as a business activity deduction, but it is more beleivable and acceptable if you are a real estate professional. However, there are additional cases of abandonment, condemnation and other reasons that may be included in some special cases. The detail should make you seek the advice of a Tax Accountant or Tax Lawyer.

    If you are considering the sale of a second residence, an investment property or a property used for business there is scope for writing off the loss agains the adjusted basis. But it is complicated if there is any loan or financing associated with it. I have a property and am a real estate professional and for another employment related reason I purchased as a secondary home a property in another state more than 50 miles away from my main home. I treated it as a relocation, but in fact the project was ending earlier and the property retained as an investment vehicle with no rental income and a still declining local real estate market so I will be selling it at a loss this current year and it will qualify as a tax deductable event in the opinions of the professionals I have spoken with, assuming the sale price is still heading downward from my purchase price, with many factors to support this treatment should it be challenged by the IRS.

    http://www.irs.gov/faqs/faq/0,,id=199617,00.html

  • Rick says:

    I know of a new house that was built five years ago and has never sold. The builder paid cash for the land and financed the construction. That construction loan may have been converted to an actual mortgage, I don’t know. But, I’m considering offering to buy the house for the pay-off balamce of his loan. Is he entitled to a tax write-off for the property and interest he has paid to date, or any other kind of write off?

  • Paige says:

    Suzie, I am currently working with Access and my mortgage company to modify my home loan. I have a mortgage of 230,000.00 and only able to work part time.Gross(3147.00 to 3882.00)Depending if I work all the hours I can. I can’t find more work. I’ve invested 26,000. currently.
    Currently, I have one more payment 9/1/11 and then Access will begin pursuing a permanent modification. The payment is 898.32 and in 5 yrs it goes down 250.00. Then I have a second-not yet worked out. The loan would be at 2% for 40 yrs.
    A friend watched your program and heard that there is a bill that will tax you if you sell your house at a loss in the near future?
    Should I save my house?? Paige

  • tina says:

    I bought my second home in 2007 for $280,000. 2 yrs later I transferred the loan to my primary home. Now, the second home is mortgage free.
    I am going to sale it at loss (about $100,000) less the original price which it was $280,000. I spent about $25,000 for renovation last November. Much more.

    1. Am I going to be taxed on the sale? Let us said I sold it for $175,000.
    2. Can I report the loss in my income tax for 2012?

    By the way I rented and I paid tax on the income. The rent was not covering my condo fee and the mortgage of the 2nd home. I paid the difference out of my pocket over three years. Advise please.

  • Tommie says:

    I sold my primary home to relocate for a job. I took a 13K lost. Is that loss deductable as a relocation expense for work?

  • Justin Robins says:

    I bet this becomes even more important these days. I am an agent in Utah and there a lot of people that have to take heavy losses these days to sell. Good info. Thanks!

  • Justin Robins says:

    Sorry to comment twice, but are banks able to deduct their losses from short sales and foreclosures?

  • gxg says:

    hi, Can i off set the commercial property capital gain against my primary resident loss. If not please advise…thanks

SPEAK YOUR MIND

Enter your:


Home | Sitemap | Terms | © 20somethingfinance.com