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Can you deduct a home-sale loss?

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in Small Business Tax

Q I own a home that I bought for more than $250,000. It’s only worth $225,000 in today’s market and is still dropping. Is there any way I can claim a tax loss if I sell it? M.H., via e-mail

A Yes, but you must convert the home into rental property first. For tax purposes, your adjusted basis will become the fair market value at the time of the conversion—in this case, $225,000—rather than the higher amount you paid for the home. If you subsequently sell the home for $200,000, you can deduct a $25,000 loss ($225,000 basis minus $200,000 sales price).

Tip: On the other hand, you receive no income-tax benefit for selling a principal residence at a loss.

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