@mowmowme
As soon as you list the property as a rental, it becomes a rental property as far as the taxes are concerned. You report your income and deduct your expenses on schedule E. However, because of the capital gains exclusion rule, you are still allowed to use the exclusion on the sale of your personal home even if you have temporarily converted it to a rental, as long as you are only out of the home three years or less.
To use the capital gains exclusion on the sale of a personal home, you must have lived in a home for at least 730 days or two years out of the five years prior to the sale. The 730 days do not have to be consecutive. For example, if you moved out of the home for three years, and then moved back in the home for one year before you sold it, you would still meet the 2 years out of the past five year rule. You could even rent the home for 10 years, and then move back for two years, and you would qualify for the exclusion. (However at that point, you would run into something called the “nonqualified period” rule which will put a limitation on the amount of gain that you can exclude. That’s a little too complicated to go into right now.)
If you qualify for the exclusion when you sell the home, then part of your gain will be tax-free. If you don’t qualify for the exclusion, then all of your capital gains are taxable. This is only an issue that comes up with the sale of your personal home, because you always pay capital gains tax on the sale of a commercial property. You basically have a three-year time window from when you move out of the house to decide what you’re going to do with the house.
