Bought a home in 2013, lived there until June 2021, then rented it. If sold in June 2025, does the 2 out of 5 year rule apply to avoid tax on $240K gain? Moved for job.

[Bsch4477 · Accepted solution]

The exclusion is 250K. 
You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. 

Since your testing period started in 2020 you only lived in it for one of the last 5 years. But if you had to sell because of a job move more than 50 miles away you are eligible for a partial exclusion. 

[sun1232]

Thanks for the reply. 

can I use the money to buy a primary house where I live and get the full exclusion, can be this done after 5 years?  I am a little confused about 1031 and how it works, could you explain? thanks in advance 

[Bsch4477]

No. A 1031 exchange refers to the sale of investment property followed by the purchase of another investment property, not a primary residence. 

[HelpAsNeeded]

Same scenarion...

If the house was rented within two years before of selling, doesn't the recapture of depreciation will be taxed? Or is the non-recapture also taxed?  

[PatriciaV]

Yes, the depreciation you claimed while the property was rented will be recaptured when you sell the property. Any capital gain up to the exclusion limit is not taxable. But depreciation recapture is subject to ordinary tax rates.

See IRS Publication 544 Chapter 3 Depreciation Recapture.

@HelpAsNeeded