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Interesting situation. I think I can answer all your questions, but I may need research it further this evening.
First, you said "the property is not finished as of yet," and then you later say you moved there. My question is, did you ever put the property up for rental?
I can't answer your first question untill you tell me when the property was available for rental.
For the second question, you will have to file taxes in both states (if they both have an income tax). In the event that some income is taxed by both states (for example, if earned in one state and received in the other), there will be an offset provision so that you will get a credit in one state for the tax paid in the other.
I don't see a specific instance of that occuring if you moved after you recieved your last paycheck and accumulated sick leave; as you don't specify whether you received the sick leave as a lump sum, I can't tell if it that occured..
For the third question, if your W-2 reports the accumulated sick pay less health insurance, then that's what you pay taxes on. If it reports the accumulated sick pay, then you can deduct the health insurance as a medical expense. According to the IRS, most people claim less in medical expenses than the 7.5% of adjusted gross income, so it wouldn't do them any good. I don't know your specific circumstances, but Medicare parts A (if you have to pay for it), B, C, and D are also deductible as health insurance.
I should add that, if you did ever get the property ready for rental, you would already have to file a tax return in that state, as the rental income is subject to tax in that state as well as your residence state, but most people take a loss on rentals, so you wouldn't have to pay taxes to that state. Again, as in my answer to your second question, if you owe taxes to both states, there is an offset provision.
I'm going to be here intermittently for the next few hours. If you have further questions, I'll try to answer them when I'm here.
If you want immediate answers, you can reopen the question for other experts.
No, we never did put the property up for rent because it is not finished. The house is livable but not completed. We still have to complete putting on a new roof and complete the siding (both only half finished), as well as rewire the house and do some electrical work. If my husband's health had not deteriated (he has stage 4 end-of-life stage of emphysema), we would have eventually finished the house and rented it out. But with my husband's health, we decided I would retire and move into the house, since we owned it and it was fit to live in. The work left to be done doesn't impair our living there.
My W-2 form reports the accumulated sick pay. We usually do exceed the 7.5% for medical deductions.
I'm sorry to hear about your husband. I hope it works out as well as it can.
For your first question, then, you can't claim it as a rental. You might do better claiming it as a vacation home; that way, at least you can deduct mortgage interest and property taxes. As an investment property, claiming the mortgage interest would be problematic.
When you sell your previous house, you can still claim the $500,000 gain exclusion if you do it within 3 years after your move.
Returning to your third question; health inurance is either excluded (if done properly in the W-2) or deductible as a medical expense. There was something in ObamaCare which would have limited the medical deduction for health insurance, but it's been deferred until 2018.
How do you change a rental home (which I had in previous years listed it as) to a vacation home? We were renting our previous house, so selling wasn't a problem.
I'm afraid you should amend prior year returns to remove schedule E for the property which was not actually available for rental, but add its mortgage interest and property tax to your schedule A. This will probably increase your taxes, so you will also have to pay interest, but probably not penalties.
Many states have one more year open then the Federal government's 3 years from the filing date (or due date, if later); you may only amend Federal 2008 and later returns.