My wife's sister live in taiwan and have a house rent for 5 years in Michigan United state and have rent income and she filed her taxes using form 1040 until now she found that they need to use 1040NR, what shwoul they do? Can they continue using form 1040 instead of 1040NR? And last year 2012 they are in the united state for more that 6 month? They never have refund or owe taxes and they using depreciation for the house dduring filing their 1040 returns.

For the years prior to last years, they SHOULD have used Form 1040NR. They need to amend 2009 and 2010 to convert to 1040NR.

For 2011, they need to file a dual-status return AND submit a late Residency Termination Statement to avoid being taxed on world-wide income for 2012 and the part of the 2011 year after they met the 183-day Substantial Presence Test and returned to Taiwan.