Can I deduct tax loss from selling my parents' inherited home for less than appraisal value?

The short answer is unfortunately no, you can't deduct that loss. When you inherit a home, you receive what's called a "stepped-up basis" - which is the fair market value at the date of death (your $875k appraisal). The IRS considers an inherited home that you don't use as your primary residence to be a capital asset. When you sell a capital asset for less than its basis, it creates a capital loss. However, the tax code specifically prohibits claiming losses from the sale of personal-use property, which includes inherited personal residences that weren't converted to investment property. If you had rented out the home for a period before selling it, you might have been able to claim a portion of the loss, as that would have converted it to investment property. But based on your description, it sounds like you just held it temporarily while preparing it for sale, which wouldn't qualify. It's always disappointing when tax rules don't work in our favor, especially with significant amounts like $52k. I'd recommend keeping all your documentation about the appraisal and sale just in case your tax situation has unique aspects that might allow for some tax benefit.

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Has anyone tried claiming depreciation on an inherited house if you rented it out briefly (like 3 months) before selling? My tax guy says we can allocate a portion of the loss that way, but I'm not confident he's right.

Slightly different situation - I inherited my mom's house that had a $450k mortgage but was only worth $420k at death (underwater). I sold it for $435k but after paying off the mortgage had negative proceeds. Any tax implications I should be aware of?

I went through a very similar situation with my father's house last year. The key thing to understand is that even though you can't deduct the loss directly, you can still maximize your tax position by properly documenting all allowable selling expenses. Make sure you're including everything in your basis calculation: realtor commissions, title insurance, transfer taxes, attorney fees, inspection costs, and any repairs that were necessary to make the property marketable. These all reduce your "gain" (or in your case, increase your "loss" even though you can't claim it). Also, if you paid any property taxes, insurance, or utilities during the 8 months you held it, those might be deductible as rental expenses if you can show you were actively marketing it for sale during that time - though this is a gray area you'd want to verify with a tax professional. The stepped-up basis rule is designed to help heirs, but unfortunately the personal residence loss limitation works against you in situations like this. It's one of those frustrating tax code inconsistencies that doesn't always make practical sense.