Often times it is 2 to 3 years after the fact that an audit may come up and if the IRS sees substantial errors in one year they usually open up several more.

It is questionable whether it would pass audit. 

@Mark Sandoval the IRS is hiring a LOT of new agents to investigate tax issues.Accounts have always told us that one of the big red flags that triggers an audit is comingling personal and business funds.So, if you are going to be claiming a rental property on your tax return, you may want to consider at least getting a DBA (Doing Business As) to open a business bank account to run thru income/expenses regarding the rental.

The time that you hold the property is only one factor is helping to demonstrate during an audit that you did in fact have the intent to hold for rental or investment. 

You might get away with claiming cap gains, but if audited/questioned, you'd have to show original intent was actually for a long term hold.

I know because I just went through a audit for two years with the irs....

As such, while you can do both just be careful that it is readily discernable to the IRS in the unlikely event of an audit. 

If she truly lived there, I would take deduction and not worry about it, because in the event of an audit you could always get friends and family to verify it was her primary residence.  

If you are audited, it is all about your intent and whether you can prove that you had the intent to hold the property for rental, investment or business use.  

There are also people that live way beyond their means and buy stuff they can't afford... but unless you were to audit someone you'd likely not really know the difference.