Additional Home vs. Primary Residence

[Sandy26]

My clients rented and lived in a home in Oregon on a lease option agreement from March of 2003 to the end of 2005. They moved to Washington for new employment at the beginning of 2006. They continued to pay rent on the vacant house in Oregon. In February of 2006, they decided to exercise their option and purchased the Oregon house and then refinanced the house in November of 2006. After moving to Washington, they stayed with family and then moved into a rental and recently moved into another rental on a lease option agreement. The house in Oregon is still vacant. First, I'm I correct in thinking that the mortgage interest, real estate taxes and points they paid on the Oregon during 2006 would be considered as paid on an additional home and not a primary residence? Second, since my clients lived in the Oregon house over 2 years as renters. If they leave the house vacant and sell it after owning it for 2 years, would they qualify to treat the Oregon house as their primary residence and exclude the gain on the sale of the house?

Thank you for any help or suggestions,
Sandy

[lbbwest]

Primary residence.

"They moved to Washington for new employment at the beginning of 2006. They continued to pay rent on the vacant house in Oregon. In February of 2006, they decided to exercise their option and purchased the Oregon house"

It doesn't sound like it was ever their primary residence, so no exclusion on gain. They can of course deduct the mortgage interest and property taxes as second home.

[rosieea]

[QUOTE=lbbwest;36370
It doesn't sound like it was ever their primary residence, so no exclusion on gain. They can of course deduct the mortgage interest and property taxes as second home.[/QUOTE]

The OP indicated that they had lived in the house for 2 years. The periods of ownership and occupancy do not have to coincide, as long as both qualifying periods occur within 5 years prior to the sale.