It's not reasonable to account for water weight gains in talking about weight loss. Water weight is transient in that it will reach some maximal state, and often times it is only at the onset of a diet change (i.e., the first day or two) and then it comes right back off. Weight in general flucuates a LOT more than people think. My weight can flucuate by as much as 1-2 lbs per day, even while eating the same exact meals. The only appropriate way to look at weight gain/loss is on a weekly sliding average... and at a 500cal deficit per day, you almost certainly would see that weekly average change downwards.