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I've lost a bunch of value on my primary residence. I've got a bunch of vested stock options that, when exercised/sold, will be a substantial capital gains.

If I sold my house the same year I exercised/sold the options, would I save taxes by offsetting the gains with the losses?

(I'm in the US, California if it matters)

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No, a loss on the sale of a primary residence is not tax deductible (just as the gains are not taxable, up to a limit)

See here - IRS Pub 523

Specifically, on page 5:

Loss on sale. If the amount realized is less than the adjusted basis, the difference is a loss. A loss on the sale of your main home cannot be deducted.

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    Yea, its only fair. You don't pay taxes on the gains!
    – jldugger
    Dec 2, 2011 at 4:13

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