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Subject Expert
You could convert your primary residence to a rental property in order to deduct a loss when you sell it. There is a catch to this. Any losses in value that occurred before the rental conversion would not be deductible. So if the home’s value when down while you were still living in it, that would not be deductible. You may, however, be able to write off declines in value that happen after the property is converted. From https://smartasset.com/taxes/writing-off-losses-on-sale-of-investment-property
Here’s an example of how that works. Say that you convert your principal residence to a rental property. At the time of the conversion, your cost basis in the property is $400,000 and the property’s fair market value is $300,000. You rent out the property for another six months, during which time its value drops to $200,000. Your tax basis in the property would be its value at the time of the conversion, less any depreciation. You’d only be able to deduct the difference between the $300,000 it was valued at and the $200,000 you sold it for, minus any depreciation deductions you claimed during that time.
So based on that, you should get an appraisal of the value at the time you converted. I assume that an appraiser could do this retroactively. Then you can deduct the loss during the time as a rental.
Subject Expert
I don’t think there’s a requirement to have an appraisal but if you are audited, you will need some basis to support the value you place on the property at the time it converted. Note that I am not an accountant or tax attorney and am only giving you my understand from what I have read.
Subject Expert
How long total did you own the house?
6 years. March 2016 to March 2022.
Rented from July 2021 to March 2022.
Rental income- $20k
Capital Loss- $40-50k