Can I partially qualify for Section 121 Principal Residence Exclusion? I lived in the condo for 1.5 years, then rented out for 1 year after moving out of state for a job.

I was living in the property as primary residence for 1.5 years, then had to move out of the state for employment. The condo has been rented out for a year. The property is in New Jersey.  Do I qualify for partial capital gain exemption in this case if I sell the condo?
DaveF1006
Expert Alumni

Deductions & credits

No.  The IRS is very specific According to IRS.gov

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)

There is no provision for a partial gain exemption.

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Deductions & credits

Yes, if lived in the home and moved because of a job change (where the new job was at least 50 miles further away), you would qualify for the "Reduced Maximum Exclusion".  

gloriah5200
Expert Alumni

Deductions & credits

It sounds like you still have not sold the home, that it is still a rental property.  Using a partial exclusion of gain on the sale of a home only occurs if the home is sold.

 

If you were to sell the home now, then you would have to recapture gain taken on depreciation of the home while it has been a rental property.  The IRS rules on depreciation are "allowed or allowable".  If you have been renting the house out and depreciated it or did not depreciate it, then you still must reduce the adjusted basis by the amount of depreciation allowed or allowable.

 

Depending on the year you purchased the home and if you used a First Time Homebuyer's Credit for the purchase,  you may have to pay back part or all of the First Time Homebuyer Credit received since you did not use it as your home for 2 years.

 

If you had sold the home, if you didn't meet the Eligibility Test, you may still have qualified for a partial exclusion of gain. You could have met the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.  The unforeseeable event could be a work-related move.

 

The period of time it was a rental property does not qualify for the period of time it was used for your principal residence.

 

To calculate the partial exclusion on the gain on the sale you would complete the worksheet in TurboTax on the return for the year of sale to calculate the amount of partial exclusion of gain qualified to be used for the sale of the home