When you were first buying your home you were probably told there are numerous tax benefits to owning a home, such as being able to deduct your mortgage interest. You might have even been told about tax breaks you can receive when selling your home. No matter the case every year around tax time we are often asked by homeowners about whether or not you can you claim a loss on the sale of your home.

Many times we are asked this question by people who are considering a short sale or even a cash investor. In both of these cases the homeowner is usually presented with an offer that is below what they currently owe on the home, as well as an offer that is below market value. If they accept either offer they are going to be faced with a loss come tax time, so they are looking to see if there is some benefit to this loss.

The short answer to the question  is a simple no. According to the IRS you cannot claim the loss of the sale of your home on your yearly taxes because the loss is considered a nondeductible personal expense. With that being said that only applies to your personal residence. If you own rental property that you are selling or you own commercial property, than that loss can be claimed on your taxes.

So, what happens if you turn your personal residence into a rental? If that is the case you can then claim the loss, but it has to be converted to a rental before you sell it. Not only that but the amount of the loss that you can claim is going to be limited due to the property being your personal residence in the beginning. When it comes to claiming the loss the value of the home is going to change. The value will be either the property’s tax basis or the fair market value, whichever one is lower on the date that you converted the property to a rental. If the value of the house went down before you turned it into a rental you cannot claim that loss, but if the value dropped after you made the conversion you can claim that portion of the loss.