If you’re having trouble selling your home, be aware that you can’t claim a tax loss on the sale of a principal residence.
Strategy: Turn the home into a rental property. In other words, rent it out to tenants while you relocate.
Not only will this reverse your financial fortunes, you’ll be in line for a bushel of tax breaks.
When you rent out your home, you’re entitled to the same tax benefits as any other landlord. Therefore, you can write off depreciation, utilities, insurance, repairs and more to offset the tax on rental income. Best of all, when you finally sell the place, you may be able to claim a loss on a sale of rental property (see How much is your loss? below).
Do you actually have to rent out your home to qualify for this tax break? The IRS may challenge the loss if you can’t find a tenant, so keep detailed records to support your claims. Suggestion: To be on the safe side, rent out the home for at least two years before selling it.
Suppose your home rebounds in value. If you convert it back to a principal residence, you may then qualify for the home sale exclusion. The $250,000 exclusion ($500,000 for joint filers) is available if you’ve owned and used the home as your principal residence two out of the previous five years.
Tip: The tax law reduces the exclusion for “nonqualified use” (e.g., rentals). See your tax pro.