Sale of home after multiple periods or rental and main residence

[jeffo45]

I have owned my home for five years. Initially I rented it then used as my residence for three different periods. The total number of days l lived in the home total more than 730 days. An example is 200 days as my residence followed by renting 365 days then my residence again for 200 days followed by another rental period of 300 days then my residence again for 365 days. The total is over two years as my residence during this five year period. I lived outside the USA during the time I rented the home. Would this be considered qualified use of the home for the capital gains exclusion? I owned no other home during this period

[Carl]

It's qualified use. TO qualify for the capital gains tax exclusion the property must have been your primary residence for at least 24 months of the last 60 months you owned it, counting backwards from the closing date on the HUD-1 statement you will receive at the closing when you sell it. The 24 months do not have to be consecutive. but they must all have been within the last 60 months you owned it.

[jeffo45]

OK thanks. I did go back and look at the depreciation which I then added up and entered on Turbotax and it then gives me the exclusion minus the depreciation. I haven't been able to get an answer from the IRS on this as they don't take these questions during this time period. I have never had a tax person or CPA so ya...Thanks a lot!!!

[Carl]

Remember, for the depreciation recapture to include 2016 too. You have to add together prior year's and current year depr to get the correct figure there.

[TaxGuyBill]

Because you used it as your residence AFTER it was rented, the exclusion is prorated.  It is best explained by a simplified example.

Let's say you bought the house for $100,000, sold it for $150,000, and took $10,000 of depreciation.  Let's also say it was your Principal Residence for exactly 60% of time (the actual calculation uses days), and it was your residence when it was sold.

In that scenario, the $10,000 of depreciation can not be excluded.  For the other $50,000 of gain, you can exclude 60% of it.  So you can exclude $30,000, but you will pay tax on the other $20,000 (plus the $10,000 of depreciation).

[Carl]

It does matter who was the last to move out prior to the date of sale... the owner or the tenant.

[jeffo45]

The 60% being the time I actually lived in the house? I am actually going to make it 732 days of my total occupancy and a total of five years and three months of owning. It will be my residence when I sell. A bit confused and this may change my decision on what to do with the home. I lived overseas during this time and not in the military or special assignment.

[Carl]

The percentages do not matter and are totally irrelevant. If you lived in the house as your primary residence for at leat 731 days of the last 1826 days you owned it, counting backwards from the closing date on the HUD-1 statement you will receive at the closing when you sell it, then you qualify for the capital gains tax exclusion. Those 731 days do not have to be consecutive either, so long as all of them are in the last 1826 days you owned it. One day short, and you don't qualify.

[TaxGuyBill]

@Carl   He has "Nonqualified Use", so he can only exclude PART of the gain.

@jeffo45   If it was your Principal Residence for 732 days out of 1915 days of ownership (about 5 years, 3 months), not counting the gain from the depreciation, only 38.2% (732 divided by 1915) of the Gain can be excluded.  So the other 61.8% of the Gain is taxable, plus the depreciation.

[SweetieJean]

732 divided by 1915 is 38.2%

[TaxGuyBill]

Thanks @SweetieJean , I accidentally typed 762 into my equation, rather than 732.  I'll correct my comment above.

[jeffo45]

Bill, is the non qualified use due to renting the home before I lived in it or renting multiple times?

[TaxGuyBill]

It is from renting it before you lived in it.

This doesn't apply to you, but for any future readers of this thread, Nonqualified Use only happens for rental periods (or any other time period when it was not your Principal Residence) after 2008.  Periods before 2009 do not count towards Nonqualified Use.

[TaxGuyBill]

One more clarification for any future readers of this post:  Let's say you now rented it out for another 100 days, then sold it.  That extra 100 days is NOT Nonqualified Use because you did not live in it afterwards.  So in that hypothetical situation, you would use 832 days of use, divided by 2015 days of ownership, and be able to exclude 41.3% of the Gain (not counting depreciation).

Of course in that situation, you might not even meet the 2 year rule, in which case you wouldn't be able to exclude any of the gain.

[jeffo45]

So the one year period I rented the home after I purchased it and before I moved into it causes me to lose the exemption due to this being unqualified use? Also with the calculation going out past 925 days from the date of purchase is not inside the last five years...confusing