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So, are you saying that if we did file ammended returns for 2003 and 2004 and treated the house properly as a rental from 8/03-8/04 then we could write off the loss? Even though we were living in it from 8/04?

No. What I'm saying is that you filed incorrect returns for 2003 and 2004.

It's your personal residence, and no matter how you slice it, you can't deduct a loss. In fact, after the allowable depreciation adjusts your basis you may not even have a tax loss (possible, not probable, if I remember you numbers).

You really need to have someone fix this for you. That cost will be a 2005 Schedule A miscellaneous itemized deduction.

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