Sale of primary residence converted to rental

[Chin51]

Hello,

We bought our home in April 2011, lived there until May 31st 2020 (for over 9 years), moving to a town not far. We wanted to hold onto it in case we decided to move back. Its been rented since June 1, 2020. Considering we have an approximate gain of $150,000 based on today's selling price, we are worried we might trigger a big tax gain if we lose the exemption. We are in a rental and haven't bought a second home yet.

If we sell in 2022, do we still qualify for the capital tax gain exemption? We are a married couple filing jointly.

How do we report the sale of a primary residence if it was rented for part of the year it was sold using turbotax premier? Any specific steps to follow?

Thank you,

[MinhT1]

If you sell your home in 2022, you would have lived in it for more than 2 years in the 5 years preceding the sale, so you will be eligible the capital gain exemption on the sale of your home of up to $500,000 as you are filing jointly.

Yes, you can use TurboTax Premier to report the sale of the home as the sale of a rental home, but there will be questions in the TurboTax interview to determine your eligibility for the exemption.

[Chin51]

Thank you,

I'm also wondering if we held onto our home, keep renting and lose the capital tax gain exemption, after say 10 years, how are the gains taxed? To begin with, my adjusted basis since starting rental is about $166,000.

[ColeenD3]

Your tax could be in two parts. If you sell at a gain, the sales price over the purchase price is a capital gain and taxed at the capital gain rate of that particular year. Any depreciation recaptured is ordinary income and taxed at your tax rate.