This week’s FAQ: Deductions on a home sale loss

Given the economy, some homeowners owe more on their home than its fair market value. The question often surfaces:

Can a homeowner deduct losses from a home sale on a federal tax return?

Homeowners cannot deduct a loss on the sale of a principal residence.

While much has been done to improve the exclusion of gain (up to $500,000 every two years for a married couple and $250,000 every two years for a single person) no new laws have changed the status of home-sale losses.

In addition, a loss, if any, has no effect on the cost basis of the new home.

While you cannot deduct a loss on the sale of your home, you may be able to do so if you own a house as investment property.

At least two bills were introduced in the legislature recently regarding the subject of losses on principal residences but neither passed.