Core Insights - The IRS does not allow deductions for losses on the sale of a primary residence, but losses on rental or investment properties may be deductible [2][22] - Capital loss deductions can offset capital gains from other investments, and if losses exceed gains, up to $1,500 ($3,000 for married filing jointly) can be deducted against ordinary income [5][23] Tax Rules for Different Property Types - Personal-use properties, such as primary residences and vacation homes, do not qualify for capital loss deductions [3][10] - Investment properties and flipped homes can be claimed as capital losses, allowing for potential tax deductions [4][5] - Rental properties have complexities due to depreciation, which can lower the cost basis and potentially create taxable gains upon sale [7][9] Documentation and Compliance - Proper documentation is essential for claiming real estate losses, including closing statements and receipts for capital improvements [16][19] - The IRS requires accurate records to substantiate the cost basis and any claimed losses [16] Special Considerations - Properties converted from personal use to rental may be treated differently under IRS rules, impacting the deductibility of losses [12][14] - State tax rules may vary, and consulting a tax professional familiar with local regulations is advisable [20][21]