<prompt> Human: I purchased the home as my primary residence in California in 2008. I lived there until a few months ago when my sisters divorce was finalized and she lost her house. My wife and I moved into a small apartment because sis could not find a place that would accept her destroyed credit and mostly off the books income. She wants to someday buy the house from me. I am ok with that for lots of reasons, but I am worried that since I dont live there anymore that the IRS might consider it an investment property. Apparently she needs to buy it in the next 3 years or else I take a huge hit on any equity I earn since the home is no longer my primary residence. So my 2 questions are:1 Does she really need to buy it in the next 3 years? Can we stretch that out any?2 Is there any way in hell she could buy my home within those 3 years? How will she get the financing?I know that is 4 questions, please be gentle...  <response>: You have to have lived in the house 2 out of the last 5 years I believe, so yes, sounds like it needs to happen within 3 years. This is an IRS requirement, no stretching allowed.Without knowing details of her financial situation, it is impossible to know if this can happen within 3 years. 