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Capital gains exemption on primary residence that has been rented for a year.

I bought a house as a primary residence in Dec 2011 for $220K, lived there for 3.5 years, and then in June of 2015 bought a condo in the city and moved there. I rented the house for a 1 year, and now I’m planning to sell it for $440K. I have a following question:
At the moment my total ownership of the house is 4.5 years. Should I wait another 6 months to sell it and avail the $250K Exemption as a single person? In other words do I need to wait for 5 years to get this exemption or can I sell it now?
1 Reply
Lilly Peck
Level 4

Capital gains exemption on primary residence that has been rented for a year.

Qualifying for the Exclusion

In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You are eligible for the Section 121 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. Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

The "ownership" test requires you to have owned the home for two years. To pass the "use" test, you must have lived in the home as your primary residence for two of the past five years. Your two years can be a combined total of 760 nonconsecutive days over a five-year period in which you lived in the home as your primary place of residence.

The determining factor is that you lived in the home for 24 months not whether you owned the home for five years.

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