I sold my home at a loss, but can I claim a loss on my taxes?

Question

I bought the house, made improvements, and sold it under 2 years - but I sold it for less than what I paid for it because of the current market. Here is what I understand from the IRS:

1. If home is sold under 2 years and profit is made, then you must claim profit whether you lived in it or not.

2. If home is sold under 2 years and lose money, then you can only claim a loss if you did not live in the house.

It seems like a one-way street with the IRS. Is there anyway I can claim a loss on my taxes? How can the IRS prove I really lived in the home and not in my friends or parents home? There has to be some way around this, because I took a pretty hard hit financially with this property.

Thanks.

I realize that the IRS says I can't claim a loss on my personal home, but is there a way around it? There is almost always a loop-hole in the system. What if I told the IRS I bought the home for PROFIT-Only and I lived somewhere else? That would work right?

Answer 1

Losses on personal homes are Non-Deductible.

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I wouldn't be up to the IRS to prove that you lived there. It would be up to you to prove that you didn't and there would be a ton of evidence against you.

1) What did you put on the mortgage application (personal residence, investment property, rental property) ?
2) Drivers License records. What address is/was on your license?
3) Post Office records. Where was your mail delivered?
4) Voter Registration. Where did you register to vote?
5) Professional Licenses. What address did you use?
6) Occupation. What address did you use with your employer?

Then, using all this info, you could be charged with Fraud which could bring criminal charges.

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No, there is no way around it. Trying to claim that it was investment property after the fact could be construed as fraud and get you in a whole mess of trouble.

Answer 2

In order for the loss to be deductible, it has to either have been a rental property, or investment property. In any case, if you owned the home for more than one year, it is considered a capital loss, which is deductible to the extent of your capital gains from other sources and $3,000 per year. So you can only have a deductible net capital loss of $3,000 each year. The amount that cannot be deducted is carried over to future years until the capital loss is used up.

Answer 3

I agree it is not fair, but it would be very easy for the IRS to know that you lived in the house.
Obvious ones: what did you use for your home address on last year's tax return? Did you deduct mortgage interest/ tax on this house in last year's return?