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Because there are so many forms and schedules that have to do with the sale of real estate, I'm confused as to the best tax advantage in my situation.

During the next two years, I have the opportunity to sell one of my homes as either a second home, or as rental property. My basic question is: which way will provide the best tax advantage? Currently the home qualifies as a second home as my mother-in-law is living there rent free and has for the past two years. Previously the property was listed as rental property for two years. My mother-in-law is moving out of the house and I would like to sell the house within the next two years.

Is it best to sell now while the house is considered my second home, or rent it for two more years and sell it as rental property. I'm familiar with Schedule D which I assume I would use for sale of a second home, but not familiar with Form 4797, used for sale of rental property.
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