Can we take a tax write-off if we sell our home at a loss?


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Dear Real Estate Adviser,
We’re selling our home, which we bought for $415,000 in 2006. All the Realtors we’ve spoken to seem to think we’ll be doing well to get $300,000 to $340,000! Is there any kind of tax break we’d be eligible for if we take a $100,000 loss? We live in a great neighborhood in Charles Town, West Virginia.
— Cynthia M.

Dear Cynthia,
Unfortunately, losses from the sale of personal property such as your home aren’t deductible, according to the IRS. While the 300 grand or so you’ll receive in your case isn’t taxable, of course, you’re essentially stuck with that loss in the difference between your purchase price and your sales price, I’m sorry to inform you.

It would be a different story if your house were an investment property or had been converted to one, depending on whether you had offsetting gains with another rental home and met other conditions. But in a personal residence, no dice.

Reason for the policy

Why is this? Well, the IRS rarely taxes capital gains from selling a primary personal residence for profit, unless that profit exceeds $250,000 for a single filer or $500,000 for a married couple filing jointly. So to balance the equation, the “revenuers” have declared that a capital loss on a home can’t be deductible — even a huge one.

Can you hold on?

You were unfortunate enough to buy at the top of the last cycle in 2006. Where you live, the median sale price is around $270,000 compared with the roughly $360,000 it was in 2006 — numbers that seem to jibe with what local Realtors are telling you.

However, local values rose more than 5 percent last year and remain on a slow upswing. So you may fare better if you can wait a couple more years to sell, especially since you’re located on the outskirts of the in-demand Washington, D.C., area, which is about an hour-and-a-half’s drive away, if my geography holds correct. However, that’s a big “may.” No one can say with any certainty how high the market will head or how long before it slides again.

What to do next

There are ways to maximize your home’s desirability. One of the best is to correctly price the place from the get-go. Don’t just hire the first agent who promises to sell your home for more than the others are estimating. Hire based on such things as track record, recommendations, thorough market knowledge, sales-data support, staging suggestions and your personal interview. For other hints, see my 10 top real estate tips.

As much as I hate to say it, you’re still probably going to take a beating on this deal. Be a little more judicious on your replacement purchase than in the past, assuming you’re not going to rent. But on the other hand, don’t let a few thousand get in the way of your happiness just because you took a loss last time.

Good luck in your sale!

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