Hal_Al
Level 15

Investors & landlords

You may exclude the capital gain ($500K limit for married) on the sale of your primary residence (property A) if you owned and lived in the home for 2 out of the 5 years prior to the sale.  If you lived in it less than 2 years but moved (at least 50 miles) for employment reasons*, you may still exclude the gain.  The $500K max is reduced (in your case [lived there 1 year] to $250K).  Since your gain was only $45K, you get to exclude it all.  But, you must pay tax, at ordinary income (not capital gains) rate, on the depreciation you shoulda claimed while renting it out. You have one additional criteria to meet: you must sell within 3 years of moving out. So, for example if you moved out Sep 30, 2018, you must sell by Sep 29, 2021. 

 

You may only claim the capital gain sale exclusion every two years.   So, if you sell property A (and exclude the gain) in 2021, you cannot exclude the gain on the sale  of property B, unless you wait two years to sell it.

 

*There are other "unforeseen circumstances" that may qualify you for an exception.  See 

http://www.nolo.com/legal-encyclopedia/the-partial-home-sale-tax-exclusion-irs-approved-unforeseen-c...