Residence or Travel

Today TaxMama hears from Susan in the TaxQuips Forum, with this issue. “We have a rental property that we want to re-establish residency in for the 2 year period without selling our current home we live in. I have to go back to work near the rental property so it is my plan to stay there during the week while working. Would and could my presence living at the current rental property count as re-establishment of residency?”

Dear Susan,

In other words, you want to live apart from your husband? You can make the rental your principal residence. You would have to change your mailing address, voter registration, driver’s license, billing, etc. to that address. You would need to live there most of the year, for each of the two years.

Then, when you sell it, you may use your personal residence exclusion only – the $250,000. Not your husband’s, since this will not have been his residence at all.

You need to bear in mind, since this has been a rental, you will have to pay tax on certain profits. That includes the depreciation you’ve taken. There will also be a reduction of your personal residence exclusion based on a ratio of the number of months you used it as a rental after 12/31/2008, divided by the number of months you owned the property.

To really understand the implications of your decision, sit down with a tax professional to work out the numbers. Also, see what your tax break would be if you were NOT to make this your personal residence, but used the costs as travel expenses, if this is a temporary employment arrangement.  You may have some options.

And remember, you can find answers to all kinds of questions about residences, free. Where? Where else? At

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