Four years ago, the Internal Revenue Service changed the law that required consumers to pay tax on mortgages forgiven by a lender. Those amounts used to be considered taxable income on a homeowner’s tax return.

There is no relief or tax deduction, however, for selling your home at a loss.

Most homeowners are now clear on the ability to pocket up to $500,000 of tax-free capital gain ($250,000 for single people) on the sale of a primary residence. The huge benefit, which can be used every two years, was made possible by the Taxpayer Relief Act of 1997.

However, the tax law that provided the capital help did nothing for capital losses. There still is no benefit for folks who bought at the peak or made expensive remodels, then had to sell in a hurry and actually got less for their home than the cash they have invested in it. Long-term capital expenditures usually pay off over time, but changes for the short term are difficult to recover.

If you were hoping for some help on your 2010 return before April 18, (pushed back from the usual April 15), don’t count on chalking up a capital loss as a big tax deduction. There still is no deduction for a capital loss on the sale of your primary residence. This often causes confusion and provokes questions from consumers, but Uncle Sam will not let you show a loss if you sell for an amount less than the purchase price.

Why? The principal residence has always been viewed as a personal asset. The gain on the sale of a principal residence has been taxable as a capital gain but losses have never been allowed. Although the capital gain thresholds have been increased, proposals to address capital losses have been defeated.

The capital loss proposals first surfaced in the 1990s when complaints from homeowners in the Sun Belt states and New England said they were left with huge losses and no federal tax help when home values plunged — especially when the declining oil industry in Texas really shook the housing market around Houston.

Another hotly debated issue is the deductibility of loan fees. You can deduct the loan fees ("points") paid to buy or improve your main home in the year of purchase. You cannot deduct these fees in the year you refinanced if you refinanced only to obtain a lower interest rate on your loan.

The term "points," once used to describe only prepaid interest on government loans, now is used to describe charges paid by an owner to secure any mortgage. These points can be loan origination fees or prepaid interest to "buy down" an interest rate. To be deductible, these charges — or points — must represent interest paid for the use of money and must be paid "before the time for which it represents a charge for the use of the money."

According to the Internal Revenue Service, most points paid when you are refinancing an existing mortgage must be written off over the life of the new loan. For guidance on closing costs, the best source may be the settlement sheet from the original loan.

And finally, if you manage your second home and investment rentals from your home office, make sure the office space you claim as a deduction is a dedicated room. Simply bringing a laptop into the family den in the evenings to respond to renters would not qualify the room as a home office under IRS guidelines. Accountants say some home-office deductions have raised red flags with federal auditors.

The home-office space can be depreciated. When the home is sold, however, the deprecation must be "recaptured" and subject to tax. The Internal Revenue Service’s Publication 587 "Business Use of Your Home" is accessible on the Internet at http://www.irs.gov/pub/irs-pdf/p587.pdf.

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