Loss on personal residence

[DaveinTexas]

A client asked me if he sells his prior primary residence for a loss, is it deductible? I told him no, unless the home was converted to a rental property.

The home in question is in an inflated real estate state, not to be named. It was his primary residence until he moved to Texas 2 years ago; his current home is his primary residence, making the home in the other state his second home.

The home in the other state has not and never will be available for rent nor does he want to convert the home to a rental property. I told him that he still cannot deduct a loss on this residence.

Am I wrong on this. Did this old primary residence become an investment property when he moved to Texas? And if so, if it is sold for a loss, can he deduct the loss as a LTC loss; subject to a max of $3k a year?

I think my brain is about to explode. TIA.

[myerstaxes]

Ummm...NO

Sorry, no loss, now or ever...facts and circumstances surrounding his ownership...If he keeps it and the market turns around, he may well very well be stuck with a gain! If the 2 out 5 rolls around and he still is holding it...

[Kram BergGold]

Sale

It has been my experience that in this situation there is neither a gain nor a loss. I am sure there is something on this in TTB but I could not find it. I did find it in Lasser's page 502.

[joanmcq]

Personal property, no loss available. Too bad! Should have sold two years ago...

[DaveinTexas]

This is what I figured

Personal property, no loss available. Too bad! Should have sold two years ago...

I couldn't find any research on this topic either. I figured it would be a personal nondeductible loss because it is not business or rental property.

He should have sold two years ago; I agree!

[ChEAr$]

Au contraire

It has been my experience that in this situation there is neither a gain nor a loss. I am sure there is something on this in TTB but I could not find it. I did find it in Lasser's page 502.

At this time, that secondary residence is personal use property, and any gain would be
taxable; but of course loss not deductible.

[Roland Slugg]

Possible second basis

When nonbusiness property is converted from personal use to business or income-producing use, its basis for calculation of loss or depreciation (but not gain) is the lower of its adjusted basis or FMV on the date of conversion. (Regs 1.167(g)-1)

It is unlikely this rule would benefit the taxpayer in the situation cited here, but the point is that it is possible for a taxpayer to have a deductible loss on the sale of what was formerly his personal residence or other personal use property.