Does occupying for 2 years really get rid of the depreciation recapture? I did not think that was the case.
-W
I've never heard of an employer offering real estate through a 401k plan.
You can buy real estate with a self-directed IRA, but I have no idea why one would. When done right, owning rental property outside an IRA provides low-tax or tax-free cash flow by allowing you to deduct interest, taxes, expenses, and depreciation. You can avoid capital gains upon sale of rental property by (1) moving into the place for two years ($500k if MFJ), or (2) conducting a 1031 exchange to another property.
From Publication 523, Selling Your Home:
How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if the following is true:
- You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
- You did not acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
- You did not claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.
Unless you held the property for a very long time or bought a hot market at the bottom, chances are your "gain" will largely be the result of depreciation recapture. Meet these three rules and you can claim the exclusion. The easiest way is to move back in for two years.