I am selling a house that I lived in for more than 2 out of the 5 last years, but I also rented it for 7 months. What tax do I owe? What do I need to do at closing?

[Opus 17]

There's an extra nuance depending on when you lived in it and rented it.  For example, if you lived there after renting, the rules are different than if you lived there first.  Could you give a timeline?

[Carl]

When you sold the house, who was the last party to move out of it prior to the sale? You, using it as your primary residence? Or the tenant you were renting to? This matters.

[Hal_Al · Accepted solution]

Since the home was your principal residence for  more than 2 out of the 5 last years, you may exclude all of the capital gain, up to $250,000 ($500,000 married). However, you will have to pay tax on depreciation "recapture", at ordinary income rates, not capital gains rates. Recapture is required on the depreciation you claimed or should have claimed, while renting it out. You were not required to claim depreciation in the year the house sold.

There is nothing you need to do about income tax at closing. The closing agent may ask you to do a form W-9 and issue you a form 1099-S, but this is routine for any real estate sale.

[TaxGuyBill]

As Opus indicated, in the event they lived in the home AFTER the rental period, the exclusion would be prorated and there would be some tax due (besides depreciation).