Tax Deduction for Selling House at Lower than Listed Price
There is no question that the Internal Revenue Code favors the Home Owner in so many ways. It is almost like Uncle Sam is in the Real Estate business part time. Despite this, there is no tax deduction for selling a house at lower than listed price.
It comes as a surprise to many people that they can not take a tax deduction for selling a house at lower than listed price. The Internal Revenue Code favors Home Owners in so many different ways. The fact that the interest on Mortgage payments is deductible has been a spur to home ownership for generations of taxpayers. The IRS even allows the interest on home equity loans to be deducted up to a limit of $100,000 and they do not really even care if you use the money to vacation in the Bahamas.
This lack of concern with the use of the money received from a home equity loan is the exact opposite of the normal restriction on the claiming of interest as a deduction on personal loans and credit cards when the proceeds are used for personal purposes. Also, the IRS allows you to profit on the sale of your home. Up to $250,000, $500,000 for a married couple filing jointly is exempt from the 15% capital gains tax.
So, it comes as a shock to many people to discover that when they let their homes sell for a price under the original listed price, they can not claim the difference as a loss and take a tax deduction for it. It is a futile activity to try to understand the logic of the tax codes. However, this particular item might have to do with the nature of the real estate market and the valuation of homes. A home has several values. There is the appraised value and even this might differ. The appraised value to the property tax collector might differ from the appraised value to a Mortgage lender.
There is also the market value and this is a reflection of the health of the real estate market in the particular area. This might differ greatly from the appraised value. There is also the sentimental value of a home. This is a value that is not easy to figure exactly. There is also a negative side to sentimental value. A home where people have been unhappy or is filled with negative memories might end up be worth a lot less on the market.
Also, the sale of a home is a deal that is reached between the seller and the buyer. It is often the result of a negotiation that resembles two Arabs selling a rug in a market. In other words, coming down from the listed price is usually a deliberate action that is done to close the deal. In most cases, the successful conclusion of a negotiated deal leaves both buyer and seller happy and satisfied. When something leaves you happy and satisfied, you can be fairly certain there will be no tax deduction allowed for it.