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We bought a vacation home 1/2011, which we intend to move into full time in the fall of 2015. I understand that when we go to sell the property the capital gains, and there will be some, will be taxed on a prorated basis based on the ratio of time owned as second home vs primary.

We intend to do a minor addition which will convert the house from a 1br/1ba to a 3/2. The cost of the addition is minor compared to the increase in value. Does it make sense from a tax POV to wait to do the addition after we have converted it to a primary residence, do it before, or no difference at all?

There is also the possibility of converting the property to a vacation rental instead of moving in. From a tax POV is it better to do the addition before, during or after we make it a rental?

We have no plans at this time to sell, and are just trying to figure out the best tax strategy since timing of the addition is not critical.

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