Section 121 Primary Home then Rental

[mactoolsix]

Taxpayer bought a home in June 2006, lived in the home until he converted to a rental in Dec 2009. Sold August 2012.
Thus he meets the use test (2 out of the last 5 years) and owned the home for the last 5 years.

Since he rented it after the last use as a principle residence, there isn't any non-qualified use, and up to $500,000 (MFJ) of gain can be excluded.

However, after putting together all the numbers he has a loss. If I claim he meets the 2 year use rule, he does not get the take the loss. If he did not meet the 2 year use rule, he gets a 70,000 deductible loss.

I don't think I have an option as he has converted the property back to personal use - thus no loss allowed.

Any thoughts about this?
Thanks,
Mike

[Roland Slugg]

Taxpayer [ ] rented it after the last use as a principle residence.

He has converted the property back to personal use - thus no loss allowed.

These appear to be contradictory statements. Was the property last used as a rental or as the taxpayer's personal residence?

If it was a rental, he may have a loss, but the basis for figuring loss is not his cost. There have been several other threads started here recently that discuss the same issue. I suggest you find those and read the responses.

[mactoolsix]

These appear to be contradictory statements. Was the property last used as a rental or as the taxpayer's personal residence?

If it was a rental, he may have a loss, but the basis for figuring loss is not his cost. There have been several other threads started here recently that discuss the same issue. I suggest you find those and read the responses.

Yes, you are correct - sorry for the poor post!

Property was last used as a rental, however since the rental was after the last use as a primary residence, can he take the loss? I'm thinking this allows him to have his cake and eat it too! Take the exclusion if there was a gain, or take the loss when there is one.

Thanks,
Mike

[erchess]

Bump

I think you are right but I wish someone like Roland who knows more about it than I do will chime in. There are many situations in taxation where a taxpayer cannot as it were "have it both ways" but in this case I think he can. I also believe it would have possible to lose the right to the exclusion of gain by renting the place for a long enough time. I do not off the top of my head know how long that would be though perhaps five years?