When are losses on the sale of a primary residence tax deductible?

Losses on the sale of a primary residence are not tax deductible according to the Internal Revenue Service (IRS) regulations. When individuals sell their primary home, they can usually exclude up to $250,000 ($500,000 for married couples filing jointly) of gain from the sale from their taxable income, as long as they meet certain ownership and use tests. However, if the sale results in a loss, the IRS does not allow taxpayers to claim that loss as a deductible expense.

This principle applies specifically to primary residences and does not extend to investment properties or those that are rented out, where different tax rules might apply. Losses on these types of properties may be deductible against other income, depending on the circumstances.

Understanding this aspect of real estate transactions is crucial for individuals going through a divorce, as it impacts how assets are divided and the overall financial implications of property sales.