Capital Gains Exemption

[Mt051018]

Hi, I’m considering selling my rental home. We lived in this home as our primary residence for 3 out of the past 5 years. The last 2 years, we’ve been renting that house out and have a separate home which has been primary. My question is: since we own 2 homes right now, are we able to sell the rental home and be exempt from the capital gains tax since we lived in that home for 3/5 years? Or since we own 2 homes, do we not qualify for that exemption anymore?

[Mike9241]

the rental was your primary residence for 2 out of 5 years before sale. after depreciation recapture any remaining gain would qualify for the home sale exclusion.   

[Hal_Al · Accepted solution]

Q. My question is: since we own 2 homes right now, are we able to sell the rental home and be exempt from the capital gains tax since we lived in that home for 3/5 years?

A. Yes. Owning two homes does not disqualify you from the home sale exclusion.  Be aware that although you can exclude most of the capital gain, you will have to pay tax (at long term capital gains rate) on the "depreciation recapture".  Depreciation recapture is required on the depreciation you claimed or should have claimed. 

If you claim the capital gain exclusion, on the rental house, you will be prevented from claiming an exclusion of the sale of another residence for two years,