I should have added something, my answers assume it was never rented and was never your principal residence.
The IRS indicates that the most important factor in determining your “principal residence” is where you spend the most time. However, if you live in more than one home, there are other factors to consider. These factors are:
• The address where you are registered to vote.
• The address you use on your federal and state tax returns.
• The address listed on your driver’s license or car registration.
• The address on file with the U.S Postal Service.
The length of time any of these factors have applied to that particular dwelling may also be an influencing factor in determining a principal residence for tax purposes. The address where you have voted and filed your returns from for many years is less likely to be questioned than one you used for one or two years. In addition, the IRS considers your principal residence as that residence close to:
• Where you work.
• Where you bank.
• Where your family members live.
• Where you are part of a club or organization.
1. For your input "Scroll to the section “Investment Income”: As this is a 2nd home, instead of an investment property, is it still classified as "Investment Income" so that I should report the 2nd home sale here?
that's the section you have to use in Turbotax for entry of the sale. see below for a discussion of losses on the sale of a personal item vs gain on the sale of the same personal item.
2. For your input "the loss is not deductible so enter the cost equal to the sales price": what's the reason it's not deductible, since this "investment" encountered a loss?
that's just the section in Turbotax to enter the sale. Losses on the sale of any personal residence 1st, 2nd, etc. is not deductible nor are losses from the sale or exchange of other personal items. For example, the sale of a vehicle with 100% personal use for less than what you paid is not deductible but if sold for more than you paid it's taxable. The same is true for that second home. A loss is not deductible but a gain is fully taxable. Just the way our tax system works. The only reason to report this sale is that you got a 1099-S. if you don't report it then you may get a bill from the IRS because it will use a cost of zero. Thus it assumes the proceeds are fully taxable and bills you accordingly. it has happened to others. then you would have to file an amended return.
