When you sell your primary residence at a loss, the tax implications are fairly simple. You are not able to deduct the loss of your primary residence from your taxes. However, if you sell an investment property at a loss, then that loss is deductible.

As with most tax laws, the Internal Revenue Service (IRS) does allow some exceptions to the rules if you meet certain criteria. There are some solutions to mitigate the amount of the loss. To learn more about the complete tax law read Selling Your Home - IRS Publication 523 (PDF).

Here is some additional information about the tax code that might be beneficial:

--      If you use part of your primary residence as a rental or an office, then that percentage of the loss can be used as a deduction because it is not part of a personal asset. For instance, if 25% of your home is used for business or rented to a tenant, then 25% of the loss can be deducted.

--      If you know you will have a loss and you are not in a hurry to sell, consider renting the house; it is then considered an investment property. You will need to rent it out for some period of time in order for it to be considered an investment property. Then, if you decide to sell the property in the future and you still have a loss, at least the loss is deductible.

--      If you have to sell your home quickly because of a new job, you might have to settle for a lower price. This may result in a loss. If the employer pays for the loss on your home, do not include the payment as part of the selling price. Your employer will include it as wages on your Form W-2 and you will include it as income on Form 1040 or on Form 1040NR.

--      If you bought your house when house prices were high and took out a sizeable home-equity loan, but house prices then drop, then you may have to sell the home at a loss. When the mortgage debt exceeds the sale price this is known as a short sale.

The tax laws surrounding capital gains and losses on personal property can get very complicated. It is wise to consult with a tax professional that is experienced in this area of tax law to review your particular set of circumstances.