Oregon Tax Consultants Practice Exam

Is it possible to deduct a loss from the sale of a second home?

1. Yes, always

2. No, never

3. Yes, if it's under $1,000

4. No, unless it's a rental property

The correct answer is: No, unless it's a rental property

The possibility of deducting a loss from the sale of a second home hinges on the classification of that property. If the second home is classified as a personal residence, losses incurred from its sale are not deductible. However, if the property is deemed a rental property, which is used for the purpose of generating rental income, then losses from its sale can typically be deducted. This differentiation is critical because the IRS allows deductions for losses related to properties that are used in a trade or business, or for investment purposes. Thus, if the second home has been rented out and treated as a business asset, selling it might result in an allowable capital loss deduction. In contrast, losses from the sale of a primary residence or a secondary home used solely for personal purposes do not qualify for such deductions under current tax law. Understanding this distinction is key for tax planning and compliance, particularly for real estate investors and homeowners who may own multiple properties.