Tax implications of selling your home at loss

I thought I would re-post a post (can I say that?) I made back in August of 2008 concerning the tax implications of the  sale of a primary residence.  Most people know that a capital gains exclusion exists for those who meet the ownership & use tests up to $500,000 for joint filers ($250,000 for individuals).  But  most people who purchased primary residences in the past 5 years and are selling now gains aren’t in the cards.  Instead they are incurring losses and I’ve had a couple past clients call me recently asking me if there is any tax benefit.  So what is the tax implication of selling your primary residence at a loss?  Unfortunately there is none.  When it comes to losing money on the sale of your primary residence the IRS takes the position that your home is “personal use property”.  So just like when you sell your car for less than you originally bought it for you may not take a capital loss.   As my father in law would say “bummer man”.

In fact, if a homeowner had mortgage debt waived as a part of a short sale then they could actually have taxable income to claim.  In this instance I would recommend speaking with a tax professional BEFORE you ever put your house up on the market.

BTW, HERE is a link to my post from August 2008.