Sale of residence question.

[PIGLEE]

Home will probably be sold at a loss. They are close to the 2 years out of 5 being a personal residence. I know if it qualifies as a residence, the loss is not deductible.

But if they fail the 2 out of 5 year rule, then sale the home, would the loss be deductible, as investment property?

In 32 years of doing tax returns, have never run into this situation before, and can't find an answer in The Tax Book (probably over looking it).

Jan

[Lion]

No

No. If they lived there, it is/was their residence. They have to live there a certain amount of time to meet qualifications for certain benefits (excluding gain or qualifying for long-time home buyer credit or maybe others I can't think of right now), but that doesn't mean it's not a personal residence. They would have to do something specific, such as turn it into a rental or hold it unused to wait out the market, to convert it from their residence into business property or investment property.

[taxmom34]

are you saying they only owned it for 2 of the 5 years or was it a rental property for 3 or more years?

[PIGLEE]

He is in the Highway Patrol. They have owned the home for 5 years, but went to Phoenix for training and they assigned them there. The house has been for sale, market real bad, brother lived in it for almost a year, but paid -0-. He is trying to get transfered back home, but not happening. His last email was a question about a short sale. They are about to loose the home, and wanted to know how it would affect his taxes.

His situation got me thinking, and thus my question. We have never seen a market like this before. If the house does not qualify as a personal residence, what is it? I think I am going to see this situation several times this year.

[Lion]

Second Home

Sounds like they don't qualify to exclude gain from the sale of a principal residence. It sounds like a second home, personal use, empty, family use with no compensations, etc. You'll have to examine the facts and circumstances.

[taxea]

Get the leech out of there and rent it until the market is better or they can transfer home.

[Burke]

He is in the Highway Patrol. They have owned the home for 5 years, but went to Phoenix for training and they assigned them there. The house has been for sale, market real bad, brother lived in it for almost a year, but paid -0-.

The fact that the brother lived in it for almost a year consitutes personal use.