I’m a non-CA resident with an out-of-state primary residence since 2021. Back in 2011, I inherited a home in CA with my sister and rented the joint property until 2016. After bad tenant experiences and home theft between leases, we decided to have my sister and her family move in. I stayed in the joint property when I visited CA, and she used the CA property as her primary residence until we sold it last year.
I’ve gotten three different guidance on reporting the home sale—all claiming that the other options are wrong and will result in an audit. Do I report it as a sale of a second home since it was that for the majority of the time and lower the cost basis based on the depreciation that I claimed during the rental periods? Or do I report it as a sale of a business property even though it was a rental for a few years? Or do I split both the purchase price and cost basis 60/40 and report part of the sales as a second home and the rest as a business property?
Also, one of the TurboTax Live professionals said I could reduce capital gains through claiming the loss from theft, which includes expensive commissioned artwork and mirror art installation that were affixed to the wall. Could I get confirmation on whether I could deduct the loss to reduce capital gains? For additional context, I previously did not claim deduction on the theft loss on my 2014 tax form due to being uninformed and didn’t receive any compensation from insurance as my policy didn’t cover loss theft. However, we filed a police report and have extensive documentation regarding this loss.
Thank you in advance for your help.
