If you sell your personal residence at a loss, meaning for less than you paid plus the cost of improvements, you cannot deduct the loss on your tax return. That figures, since if you sell your house at a profit, you won’t pay any tax on up to $250,000 in gains ($500,000 if you are married).

Losses on rental property are deductible. As a result, some people think that if they have a loss in a personal residence, they can convert it to a rental, sell it and deduct the loss. That usually doesn’t help, though. Suppose you buy a home for $300,000 and its value sinks to $250,000. If you then convert it to a rental, your cost basis in the rental is $250,000, not $300,000. To recognize a loss, the value of the property would have to sink below $250,000. You could not deduct the portion of the loss that occurred while you were living in the house.