1. Purchased my first primary home (home#1) in June 2013.
2. living in home#1 last 6 yrs.
3. Would like to buy home#2 in 2020 and move to home#2
4. keep home#1 and possibly rent out.
5. what would be status of home#1 after I buy home#2? will home#1 be converted to
6. Want to come back in home#1 in 2025 and stay for 2 yrs before I sell home#1.
7. Will I be able to avoid capital gain tax from selling home#1 in this scheme?
Thanks in advance!!
Will I be able to avoid capital gain tax from selling home#1 in this scheme?
No. You will have Section 1250 Depreciation recapture for the 5 years the home was a rental, taxed as Capital Gains when the home is sold.
pls see this article.
it says : "The man in this example could have moved back into the house for two years and sold it with a much smaller tax burden, but his girlfriend, now his wife, wasn’t up for it."
so, I guess if I move back and say for 2 yrs and then sell- that should avoid tax
no there is always depreciation recapture when property is sold. living in it two out of the last 5 years ending with the date of sale entitles you to the home sales exclusion but depreciation you took when it was a rental must be recaptured. depreciation is not an option. the law for depreciation recapture is the amount allowed (taken) or allowable (should have been taken)
meet the two year rule examples
sell for $100,000
basis after reduction for depreciation $85,000
depreciation taken $10,000
depreciation recapture (section 1250) $10,000
capital gain $5,000 less home sale exclusion of $5,000 results in $0 capital gain
same as above but basis $95,000
depreciation recapture $5,000 (recapture limited to gain)