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Old 03-30-2007, 02:00 AM
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real-estate tax question NY and Texas

We purchased a townhouse in NY in 2004 with the intention of using it as a primary home. In mid-2005 my employer offered me a job relocation to Texas.
I bought a new house in TX and my NY townhouse now becomes my second home. We decided to put the townhouse on sale around August 2005 but never got any buyer.
In February we decided to put it for rental and got a tenant in April but still left the house on the market for sale. In July 2006, we finally got a buyer and bought the house as well as continue the lease agreement with the tenant.
I started preparing my worksheet for this property for my tax return. With all the expenses we incurred on the purchase and sale as well as on the improvements for the property, i have significant losses on the property (around 18k).
From June 2005 to present, i have been using my primary home in Texas and never used the property in NY except for occasional visits when were doing some improvements/maintenance work.
Can i classify this as an investment property? If i put this as a second home, i will not be able to deduct my losses.

Any help/advice is very much appreciated.



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Old 03-31-2007, 12:04 AM
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From the facts alone, it seems apparent that the second home is an investment property the moment that you rented it out. Effectively you have converted this residential property into an investment property!

So, for an investment property, any expenses such as repairs, maintence, dues, insurance, mortgage interest and taxes would be deductible. Then, on the sale of the property, you can deduct your basis, closing costs and any commissions paid to the realtor. Based on the facts, I think you were very smart to have leased the property to a tennant, and so, you can have the advantage of deducting lossses on Schedule E and deduct an investment loss, or capital loss on sale of the property subject to the capital loss limitation rules, assuming of course you sold the property at a loss.

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