Yes, but practically No. Many people are upside down on their personal residence where the mortgage exceeds the value of the home. And naturally taxpayers want to deduct this loss when they sell their home. Losses on personal property including your residence are not tax deductible.
However, theoretically you could move out, convert your home into a rental as a business investment so-to-speak, rent it out for a bit and then sell it claiming the loss as a business investment loss. Nice try, but you have two problems.
First, when you sell a property you need to calculate the gain or loss. The difference between the sale price and the cost basis is the gain or loss. Your cost basis is the lower of fair market value (or assessed value) at the time of rental conversion or the original purchase price, adjusted for improvements, closing costs, etc. Here’s some numbers-
You convert this property a rental in 2010-
Your losses are-
When you convert your primary residence into a rental, it is critical to get an appraisal. You can get an official appraisal but even a competitive market analysis (CMA) from a licensed Realtor should work. Zillow.com and other sites can also provide a placeholder for the fair market value of the rental. Obviously the higher the value the better it is for your tax consequences.
Second, some taxpayers want to do this trick with a second home or a piece of land. They further want to retroactively claim it as an investment or rental. The problem with this is your previous tax returns do not list the property as an investment or rental- mortgage interest, property taxes, etc. needed to be specifically assigned to the investment or rental. With the exception of land, the investment or rental also should have been depreciated on your tax returns.
You can amend your tax returns of course, but this becomes a sticky issue and more discussion is required.