Cost Basis and Losses for converting rental to personal residence

[Michael Zagorsky]

We had a tenant leave our rental property in May of this year. We received about $5,000 in gross rent. The tenant trashed the property and we had to spend about $8,000 on repairs. Including new paint ($4,400) and Carpet ($2,200). These costs were incurred in preparation for us attempting to sell the home. The roof also sustained damage that we filed an insurance claim for, so we have a $1,000 deductible on that.

We attempted to sell the rental home and were unable to get a satisfactory price and cancelled the sale. We currently have the home empty while we wait to decide what to do next and if comps improve. We are thinking about using it as a 2nd home for the next couple of years as it is close to family we would like to visit making our first visit to in Q4. After a couple of years we will either rent it again or sell it. We do not plan on making this home our principal residence.

The home was originally a personal residence that we converted to a rental 8 years ago.

I was wondering how we should handle the expenses we incurred. We would want to make sure that all the expenses were either deductible or added to the cost basis of the property so we minimize capital gains when we do sell it.

So here are my questions:

1. If we are converting a rental home to a personal residence, is this the same a personal use of a rental home---would we have to prorate all expenses include repairing tenant damage?
2. Is tenant damage to capital assets (e.g., paint, carpet) different and can be fully expensed?
3. How does the personal conversion work as far as if we will be reporting a huge loss for the property?
4. How to we handle capital additions to the home for the period it is used for personal use? E.g., can a new deck or fence be add once we use it add to the cost basis once we convert it back to a rental?