I sold a rental property in December 2019 which qualified for full capital gain tax exclusion due to 2 out of 5 year primary residency rule and took the exclusion on the tax returns we filed earlier this year for 2019.
Prior to the sale of our rental property, we bought a house in November 2017 which was and still is our primary residence.
We are thinking about selling our primary residence, but want to make sure that it will qualify for the full tax exclusion benefit (not partial) under Publication 523. At what point can we sell to qualify for full exemption?
Publication 523 states the following:
Eligibility Step 4—Look-Back
Determine whether you meet the look-back requirement.
If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.
So with that being said, do we have to wait until December 2021 to sell our primary residence since we sold our rental property December 2019 and take the Tax exclusion in 2022?
OR
Can we sell our primary residence as early as January 2021 and take the tax exclusion in 2022 which would meet the rule that we can take the exclusion once during a 2 year period, but the interval between the sale of our rental property (Dec 2019) and primary residence (Jan 2021) is less than 2 years?
