Claim Loss On Residence After Relocation?

I bought my house in May of 2005, I then moved in August 2006 to California for a new job and my house has been for rent/for sale ever since. I was never able to rent, now have the house under contract and am doing a short sale on the property. I will be losing 50K on the value and will owe the second mortgage 13K and will be forgiven the remaining 37K through a 1099c. Since I actually lived there less than 2 years, can I deduct my losses on it by saying it was not my primary residence? I will end up having to pay taxes on the 37K as if it were income as well as 10 months of expenses (which I deducted much of on my 2006 taxes)...

Since i have not lived there in over 10 months and lived there for less than 2 years, can I change its status to a rental property or something where the loss could be deductible?? I really tried to rent it but there is a ton of rentals I would still lose a ton....

Help!

I suggest you talk with a CPA or licensed tax advisor. Understand the risk and potential liabilities you could incur should you decide to push the envelope with an aggressive income tax position.

I am going to take the conservative route on this one and say, no, you can not deduct a loss on the sale of your home. A loss on the sale of your primary residence is a personal expense and is not deductible.

Even though you tried to rent the house while it was for sale, in my conservative opinion, you can't claim investment use for the property because the property was always for sale. The IRS position will be that you never took the property off the market, so, any rental you might have had would be incidential to ownership, but not a qualified investment use for the property.

[ Edited by NewKidInTown3 on Date 06/17/2007 ]