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My husband and I own and live in a co-op apt. in NY we bought in March 02. Next month we are moving out of state into a rental, but are keeping the NY apt. as a pied a terre for visits and work. We are also getting a roommate/tenant, who is paying half the costs, but informally and with no lease. Our plans are probably to keep this arrangement until June 2005, and then sell. At that point I doubt we will make much gain on the sale, mainly due to high seller costs.

Here is my question: should we just ignore the rental income and call it our primary home, regarding taxes when we sell? Or is there any benefit to depreciating part of it as a rental? I'm a total newbie when it comes to the tax issues of rentals, but figure it's got to be a fair amount of paperwork. We'll be in the same high tax bracket the whole time.

Complicating the issue is that we'd like to renovate the bathroom (in the roommates bedroom) for about 8K. As a primary home we can add these costs to our tax basis, right? But as a rental, we could deduct this cost right away? Or would it be only half deductible as the whole place is half rental?

I'm wary of the whole thing, and would prefer a simpler solution to one which would save just little money. However, I also don't want to get in trouble with IRS.

Thank you
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