July 2003, I purchased a home for $121,900. October 2003, I relocated with my job. I continued to rent the home until July 2010. My job relocated me back to the area. I moved back into the home July 2010.

I am estimating $30,000 in depreciation and have a carryforward of passive losses of $18,000. I would then estimate by basis at $109,900.

I understand you have to live in your home 2 of 5 years to consider it primary residence and exclude from capital gain. However, what if I am in a loss position? Let’s estimate that I sell the house for $100,000 and show a loss of $9,900. I know you can’t deduct a loss on home for your primary residence. However, what if I sell the home prior to the 2 years that would make it my primary residence for tax purposes (exclude gain)? Can I deduct the $9,900 if I sell the home in 2011 or would I have had to sell the home in 2010 to be able to write off the loss? Or should I have not moved into the home at all in 2010 in order to write off the loss?

I have researched all over the internet and keep reading about my example but it explains what happens in a gain and not a loss. With the housing market downturn, these cases should start appearing similar to mine?

Thank you