Capital Gains Qualification

[Bennettjp]

if I rent a property, but don't own it for three years, then buy it and sell it a year later do I pay capital gains?

[tagteam · Accepted solution]

Yes, unless you qualify for an exception to the "two out of the last five years" rule.

See https://www.irs.gov/publications/p523#en_US_2023_publink10008938

[Bennettjp]

Thank you!

[Mike9241]

taxpayers who do not meet the two-year ownership and use tests may qualify for a reduced exclusion. A reduced exclusion is available if the primary reason the taxpayer sold a main home was due to any of the following:

• change in place of employment
• health
• unforeseen circumstances

for each of these, a safe harbor rule is available. if the safe harbor is not met, a taxpayer can still satisfy one of the above conditions based on facts and circumstances.  

[tagteam]

Here is a link to @Mike9241's reference:

https://www.irs.gov/publications/p523#en_US_2023_publink100073096