Author Topic: Home Sale Exclusion  (Read 1835 times)

AnEDO

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Home Sale Exclusion
« on: May 26, 2017, 07:15:11 AM »
Hello wise MMM community.  Hopefully an easy question for someone:

If one lives in a home (home 1) for 2 years or more, moves into a home that was used as a rental property (home 2) and rents out home 1 before selling it in 2.5 years, is the 2 year waiting period for the capital gain exclusion on home 2 based on the closing date of the sale of home 1 or is it based on the calendar year?

For example, I sell home 1 in July of 2020.  I take the capital gains exclusion for home 1 in the 2020 tax year.  By then I've already lived in home 2 for 2 years.  If I sell home 2 in 2022 and want to claim the exclusion for the 2022 tax year, is it based on calendar year or 2 years from previous closing?  In other words, does it matter if I sell home 2 on Jan 1 2022 vs Aug 1 2022 if I sold home 1 in July of 2020?  Thank you in advance.

   

CareCPA

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Re: Home Sale Exclusion
« Reply #1 on: May 26, 2017, 07:37:56 AM »
You can take a home sale exclusion 2 years from the date of sale from your previous primary.

Keep in mind that just by living in a house for two years, you don't get to exclude all your gains. It was still held as business property, so you will have taxes on depreciation recapture, as well as an allocation of gain between when it was your residence and when it was your rental. The gain exclusion only applies to the gain allocated to when it was your primary. You will still pay taxes on the gain allocated to when it was your rental.
These rules also differ depending on if it was primary then rental, or rental then primary.
For more detail: https://www.irs.gov/publications/p523/index.html

ETA: BlueLesPaul gives a good description in this thread https://forum.mrmoneymustache.com/taxes/personal-home-to-rental-then-sold/ (third-to-last response)
« Last Edit: May 26, 2017, 08:00:35 AM by FrugalGrad »

 

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