@leecc34 I don't think you would win a battle with the IRS should you claim a loss and the IRS challenges you. In order to claim a loss here, you would need to provide support that your purpose in purchasing the home was for investment purposes.
However, based on your facts, you have a sister living there and you have never attempted to rent out the second bedroom (the one you technically were going to be using).
I don't mind gray areas, but this shade of gray is not good.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
