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Returning Member

Captial gains tax

I am active duty military for this whole time frame. I bought a house in 2010 and lived in it until June of 2016 because I received orders to move to another state for continued military service. At that point we have been renting it out until present. We are looking at selling it now and would not exceed the 500,000 limit for capital gains on the profit of the sale. Would I be exempt from capital gains due to living in the house as primary residence for 6 out of 11 years due to the military exception in the tax payer relief act of 1997?

6 Replies
Level 15

Captial gains tax


ratings image
Level 15

Captial gains tax

IRS Publication 523 Selling Your Home page 4 -

Service, Intelligence, and Peace Corps personnel. If you or your spouse are a member of the Uniformed Services or the Foreign Service, or an employee of the intelligence community in the United States, you may choose to suspend the 5-year test period for ownership and residence when you’re on qualified official extended duty.
This means you may be able to meet the 2-year residence test even if, because of your service, you didn’t actually live in your home for at least the 2 years during the 5-year period ending on the date of sale.


Period of suspension. The period of suspension can’t last more than 10 years. Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. You can’t suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.

Level 15

Captial gains tax

The depreciation you should have been taking must be recaptured as ordinary income before you can exclude the capital gains.   


If you don't know what I am talking about or you never took depreciation at all then I highly recommend you seek local professional assistance to correct that error ... it is not a DIY situation you can do yourself.  

Level 15

Captial gains tax

TurboTax can handle the depreciation recapture, although it can bet complicated.  You can enter the sale as either a home sale or the sale of a rental.  I find the interview simpler, if you enter as a home sale.  In the home sale section, you will be given a screen to manually enter the amount of depreciation taken. 



Level 15

Captial gains tax

In the home sale section, you will be given a screen to manually enter the amount of depreciation taken.

The only thing I don't like about reporting the sale of rental property in the home sale section, is that the user has to figure the depreciation manually. Many times, they don't include the "current year" depreciation in the total, which makes things wrong. Weather or not the IRS catches that, I really don't know one way or the other.


Level 15

Captial gains tax

TurboTax can handle the depreciation recapture, of course, one way or the other.


However, @Tinnaschultz needs to be advised that it might be best to seek professional guidance, in-person, if depreciation deductions were not taken in past years (as mentioned by @Critter-3) and Form 3115 needs to be prepared as a result.

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