Rental property now primary residence

[Wendy]

New client has owned residential rental property for several years. Last year they rented it out through September then moved into it as their primary residence. I can't find how we can avoid the Vacation Home rules for expenses in excess of income. They had a loss on the rental portion, but if the loss is suspended due to vacation rules, it will be gone as it won't be rented again. Is there a way out of this that I don't see?

Thanx

Wendy

[grandmabee]

Didn't the use of the property change on October 1 when no longer a rental property but a personal residence?

[Wendy]

Yes, the use changed permanently. I was hoping I didn't have to go by the IRS "calendar year" usage and could allocate the expenses and take a rental loss. I just couldn't find a reference to that.

[jainen]

>> the IRS "calendar year" usage <<

The vacation home rules are in Section 280A, and generally apply to use "during the taxable year." However, there is an exception when the usage changes as it did in this case, assuming it was rented for at least 12 months immediately before they moved in. Meanwhile, this isn't your queston but don't let them think they can exclude gain on sale after living there two to three years. They will have to deal with "unqualified use" rules in Section 121 for that.

[Wendy]

Good point on capital gains! Thanks. It was a "rental" property for more than 12 months but not rented every month as this is a seasonal area. Also not used for personal use during that time.

[Diane]

For a rental converted to personal use = what happens to any suspended losses?

Diane