Okay, so the housing market is certainly looking like a “Buyer’s Market.” Not bad if you want to buy a home! Unfortunately, what is good for the buyer is not necessarily good for the seller. Many are having to sell their homes for less than they paid for the home, and often less than they still owe. But that’s okay–they can take the loss off their income taxes, right?
According to the IRS Publication 523, “Loss on sale. If the amount realized is less than the adjusted basis, the difference is a loss. A loss on the sale of your main home cannot be deducted.”
The Federal Government has given help over the past few years allowing an exemption for gains on the sale of the main home/residence. This was intended to help ease the tax burden as the values of homes skyrocketed, and allow for the keeping of that equity on which so many had come to rely.
Unfortunately, the same “benefit” does not extend to a tax break when we have a “loss” on a home. Obviously, when all the housing property values were increasing we were not as concerned about the possible tax implications of a loss. In fact, I suspect few people realized that we could not claim a loss on our homes on our income taxes.
I propose the following legislative action:
- Introduce legislation allowing for the deduction off the income taxes of a “loss” on the sale of a main home.
- Make it “emergency legislation” enacted for this tax year, and only temporary, to carry through the next two to four years of the depressed housing market.
The way I see it, this approach is consistent with the logic of not taxing the gain. If we as a nation seek to minimize the tax impact of home ownership, and in fact encourage home ownership, then it makes sense to not tax the gain on the sale of your private, main home. It would also then follow that one should receive a “break” on taxes if that home ownership resulted in a loss on the sale. Removing concerns such as the concern for a profit, or a loss, frees up buyers and sellers allowing them to make decisions to sell a home without an expectation of severe negative impacts at a later date.
There are far more economic benefits to my modest proposal. For instance, it allows someone who had to take a loss (most likely forced by pending foreclosure, or a move) to more easily move into another home.
I would encourage you to submit your own positive impacts as comments here, and if you support this idea, please write to YOUR congressperson. You can find them at this link.