When selling a home, the basic tax rule is you can exclude gains of up to $250,000 if you are a single taxpayer and up to $500,000 if you are married filing jointly, provided the home was your primary residence in at least two of the preceding five years. But what happens if you have a loss on the sale? Since your primary home is not considered investment property, you cannot deduct a loss on your income tax return.

Although not a short-term solution, one way around this is to convert your home to rental property. Then, when the property is sold, the loss can be deducted as a capital loss, as long as you can prove the home was permanently converted to income-producing property. Your basis for calculating the loss is the lesser of your actual cost or the property’s fair market value when it was converted to rental property.

When calculating your gain or loss on the sale of your home, don’t confuse your mortgage balance with the basis in your home. Your basis is the amount you paid for the home plus any improvements. It is possible for your mortgage and equity loans to exceed the sales price. If you sell the home for less than your mortgage amount, then you will owe more than you received but it is still possible to have a gain for tax purposes.

Due to the home sale gain exclusion, you can exclude up to $250,000 if you are a single taxpayer and $500,000 if you are married filing jointly, provided the home was your primary residence in at least two of the preceding five years. If you move out of the house and it takes longer than three years to sell your home, your gain could be taxable.