avoid capital gain tax on home
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vbgyor
Returning Member

avoid capital gain tax on home

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
rental home?
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!! 

4 Replies
DoninGA
Level 15

avoid capital gain tax on home

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.

vbgyor
Returning Member

avoid capital gain tax on home

what if I don't take depreciation on home#1 on next 5 yrs?

vbgyor
Returning Member

avoid capital gain tax on home

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."

 

https://turbotax.intuit.com/tax-tips/home-ownership/tax-law-for-selling-real-estate/L9PmDNkK5

 

so, I guess if I move back and say for 2 yrs and then sell- that should avoid tax 

Anonymous
Not applicable

avoid capital gain tax on home

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)

 

 

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