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Rental to Personal and then sold

Technical topics regarding tax preparation.
#1
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I have a new client that had a rental property for many years. In November of 2018 he moved into it temporarily and used it as his personal residence for about 2 months. He did this in order to be able to refinance the property. He then moved out of it and it sat mostly vacant for several months before being sold in June. He did rent it out on Air BNB for 2 weeks between him moving out and the sale.

He sold the property for a huge loss. Question is: Did moving into it for a short time eliminate his ability to take a loss on the sale? Since the personal use was temporary would it not be enough to change the tax treatment?
 

#2
Nilodop  
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He did rent it out on Air BNB for 2 weeks between him moving out and the sale. . Two weeks in 2019?
 

#3
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yes 2 weeks in 2019.
 

#4
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Since the personal use was temporary would it not be enough to change the tax treatment?


Maybe. Not only did he move into it, but it seems the bank wouldn’t lend on it as a rental, so he stipulated to the bank that it wasn’t a rental.

It’s dicey, so it depends how aggressive you want to be. You could develop the facts more and maybe some of them would be favorable, like maybe he moved into it, and re-fi’d it, to get cash to clean the place up and put it up for sale. And speaking of that, I’m not sure when he put it up for sale and why. And it’s probably favorable that the personal use piece over the timeline might be minimal…and it was wedged between 2 rental periods.

It’s somewhat odd that he re-fi’d it and then sold it pretty quickly thereafter. What’s the deal there – was this a cash-out re-fi and he needed the cash?
 

#5
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He had the property listed for sale for 3 years and couldn't sell it. He had it rented this entire time. Tenant was on month to month lease so he could get them out easily if he found a buyer. His mortgage on the property had a very high rate and it was killing him. He tried to refi with numerous banks and the only way that the one would refi him was if he moved into it as his primary residence. He did that just so he could refi. As soon as the refi closed, he moved back into his other home and relisted it.

It was luck that he happened to sell it a few months later. He did not pull any cash out on the refi.
 

#6
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Is the rule that rental income from your home for 14 days or less (2 week Air BnB) does not need to be included in income?
 

#7
Nilodop  
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That's the general idea but for specifics, see section 280A(g).
 

#8
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During the time that he told the lender it was his personal residence, was in fact maintaining another residence?
 

#9
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The *real* question is whether *a fortnite* is fourteen or fifteen days.
 

#10
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TaxMonkey, he did still have his original residence although during this time he rented that temporarily via AirBNB. But as soon as the loan closed he moved back into his other house. The move was purely to qualify for the refinance. He had no intentions of ever making this is permanent primary residence.
 

#11
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Looks o me like he has a capital loss in 2019 as he never really intended it to be his principal residence (did he change is drivers license or voter registration address?) ...further proof he moved back to his principal residence immediately and even has 2 weeks of tax free rental income after he moved out while it was listed.
 

#12
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I think we're not concerned about whether this residence would be considered to be his permanent, primary, principal residence.
Fourteen days of personal use seems to be the salient threshold. See IRC Section 280A(d)(1)(A).
 

#13
Jake  
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Of course I do not know all the facts, but I have a client that refinanced a rental property a couple years ago and while the % interest was a bit higher than it would have been for a primary residence it was not that hateful. My client's credit score was excellent and the refinance amount was about 60% of the fmv of the rental property so that might have made a difference. The thing that scares me is that I think this conduct of someone claiming the property as his/her residence was essentially a fraud on the bank, and if a govt. insured loan on the government - though the bank people might have just winked at it. I would tell that potential client to seek another preparer.
 


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