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Returning Member

sold rental property that used to be primary house

I turned my primary home that I lived in from 2009 to the summer of 2017 and I bought another home that same summer 2 months later. I recently sold that home at the end of 2019 and was wondering if I will owe any capital gains taxes. I sold it for a profit of about 30k over what I originally bought it for in 2009, but could not keep renting it due to debt. is there a time limit and/or amount of $ gained or some rule that would apply to my situation that would cause me to have to pay a capital gains tax? I'm in California by the way. if there's something different between state and federal.

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Level 15

sold rental property that used to be primary house

You may exclude the entire $30K capital gain recuse you lived in it for the required time.  The rental time is irrelevant, because it was less than 5 years and  occurred after it was your residence.  The fact that you bought another residence is also irrelevant (that was an old rule from 20 years ago). 

 

But, you must "recapture" (pay tax on) any depreciation you claimed (or should have claimed) while you rented it out.  Depreciation recapture is taxed as ordinary income (not capital gains rate), but not more than 25%.

 

In TurboTax (TT), enter as a home sale. TT will ask about depreciation.

 

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Expert Alumni

sold rental property that used to be primary house

It is hard to say yes or no without more information.

 

Basically, when you convert a home from personal to rental use, your basis for depreciation is the lower of the adjusted basis or Fair Market Value on the date of conversion. You will depreciate the property as long as it is a rental. For you, that would have been from years 2009-2017. At the sale, you will recapture the deprecation. It is taxed as ordinary income. If you have a gain, apart from the depreciation amount, it is taxed at capital gains rates. You did not live in the house for two out of five years prior to the sale to be able to exclude any capital gain.

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Returning Member

sold rental property that used to be primary house

Thanks for the reply.

I did live there for 2.5 years out of the last 5 years. Would that exclude me from any capital gains or other tax for the sale of my first home? I bought a new house and lived there while I rented out the old house for the last 2.5 years. Thanks in advance on any help/info on this.

Highlighted
Level 15

sold rental property that used to be primary house

You may exclude the entire $30K capital gain recuse you lived in it for the required time.  The rental time is irrelevant, because it was less than 5 years and  occurred after it was your residence.  The fact that you bought another residence is also irrelevant (that was an old rule from 20 years ago). 

 

But, you must "recapture" (pay tax on) any depreciation you claimed (or should have claimed) while you rented it out.  Depreciation recapture is taxed as ordinary income (not capital gains rate), but not more than 25%.

 

In TurboTax (TT), enter as a home sale. TT will ask about depreciation.

 

View solution in original post

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