@crdwozan wrote:
Thank you so much for your imformative reply. I'm still stuck. The screen that follows may be where I'm having a problem:
I have owned the house since 2010. So I counted the days I have used it as a second home (2,720 days) and I have calculated the number of days I lived there, in the past 5 years 1,038 days (which exceeds the 730 minimum). However, the software does not ask how many days I lived there with the house being primary. The software is calculating that $48,253 is subject to capital gains tax when my profit was only $70,214 which is under the $500,000 profit threshold for our joint return.
I hope I have provided adequate information. If not, let me know.
Thank you for your help.
Right, this is the problem of non-qualified periods of ownership. Essentially, the law was changed in 2008 so that you could not claim the entire exclusion on a second home or rental house just by moving back into it for the last 2 years before you sell it. This is not described in the current version of publication 523 but is included in the calculations in worksheet 3, section B, starting on page 15.
https://www.irs.gov/pub/irs-pdf/p523.pdf
Qualified use is:
a. any days you lived in the home as your main home
b. any days after the last time you moved out and before you sold the home, if those days were in the 5 years before the sale.
Everything else is non-qualified.
Let's take an example.
- You bought the home as a second home in 2010. You moved in as your main home in 2012 for 1 year, then moved out again. (365 qualified days).
- You moved back into the home as your main home in 2018 and moved out in 2020 (730 qualified days).
- You sold the home 1 year later in 2021 (these 365 days are also qualified, because they occur in between the last day you used it as your main home and the selling day and it was within 5 years).
- All the other days when it was a second home are non-qualified.
I don't know it if Turbotax counts your qualified days for you or if you have to do it; make sure that if you moved out and sold the house later, that you count the days in between moving out and selling as qualified.
(To try and make this simple, if you moved (in, out, in, out, in, out, sold) then all the "ins" are qualified and the last "out" period is qualified, and the other periods are not qualified.
So after all that, the part of the gain that comes from non-qualified time is not covered by the $250,000 or $500,000 exclusion.
From your numbers, about 30% of your ownership is qualified, so 30% of your gain is covered by the exclusion and 70% of the gain is subject to capital gains tax. Sorry.
