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lufffy
Returning Member

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

Does it start the day you close on the new house or when you move in to it? We have owned and lived in the first house for over 6 years but plan on selling it soon after renting it for the last 2 years.

 

6 Replies
GeorgeDenseff
Level 3

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

Capital gains tax will be entered on the tax return for the year that the house sale was closed.  The day you move into a new house does not matter.  To qualify for the exclusion you must have used the house as your primary residence for two of the previous five years.

 

Since you rented the house for the last two years and lived in it for over six years, you qualify for the exemption.  

lufffy
Returning Member

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

Thanks for the fast response!

 

I guess it gets a bit tricky for us since we are thinking about renting it for one more year before selling. So we would be very close to the 2 of the 5 years rule down to a few months.

 

We did not move and make the new house as our primary resident until a few months after the close date. We did rent back for 3 months before moving and making it as our primary.

AmeliesUncle
Level 12

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?


@GeorgeDenseff wrote:

Capital gains tax will be entered on the tax return for the year that the house sale was closed.  The day you move into a new house does not matter. 

 


 

I completely disagree.  As you later said, it must be your Principal Residence for two years.  In most cases, "Principal RESIDENCE" means that you live there.

lufffy
Returning Member

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

Thanks!! I hope this thread helps other people.

 

I agree with you as well. It lines up with Publication 523.

 

Sale of your main home.

You may take the exclusion, whether maximum or partial, only on the sale of a home that is your principal residence, meaning your main home. An individual has only one main home at a time. If you own and live in just one home, then that property is your main home. If you own or live in more than one home, then you must apply a "facts and circumstances" test to determine which property is your main home. While the most important factor is where you spend the most time, other factors are relevant as well. They are listed below. The more of these factors that are true of a home, the more likely that it is your main home.

    1. U.S. Postal Service address,

    2. Voter Registration Card,

    3. Federal and state tax returns, and

    4. Driver's license or car registration.

      The address listed on your:

     

Mike9241
Level 15

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

nonqualified use exception under section 121(b)(5)(C)(ii)(I): This exception applies to nonqualified use that occurs after the last date the property was used as a primary residence. It reads as follows: “The term ‘period of nonqualified use does not include any portion of the five-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse.” 

 

in other words, since you first used this as your principal residence and then converted it to a rental, the rental period is ignored for purposes of nonqualified use. your five-year period ends on the day before its sale at which time the use as your primary residence must be 24 months within that period. 

Opus 17
Level 15

Capital Gain Tax home sale gain exlusion on 2nd house 2 of the 5 years. When does it start?

It’s actually very straightforward. Counting backwards from the closing date when you sell the home, did you live in the home as your main residence for at least 730 days of the previous five years?

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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