How to interpret the 2 of the 5 year primary home rule for capital gains on property?

Forum|Forum|4 years ago
December 12, 2021
10 replies
81 views

I have a 2 family home that I have lived in 1 unit since I have purchased it. The other unit, I have rented it out most of the time with the exception of 5 months in 2019 and since March 2021. In order to benefit from the capital gain exclusion on primary home, i know i need to live in there for 2 years. I am ok to give up rent for 2 years so that the whole house can qualify for the exclusion. can I add the 5 months and count 19 months from March 2021 to qualify

Carl

Level 11

I have a 2 family home that I have lived in 1 unit since I have purchased it.... I am ok to give up rent for 2 years so that the whole house can qualify for the exclusion

No. Only 1 unit can be you primary residence at any one time. So you can only take the "2 of last 5" exception on the one unit that was your primary residence. Additionally, you can only take/qualify for the exclusion on one primary residence every 2 years.

Critter-3

Level 15

You have made multiple posts so it may suit you to have a sit down with a local tax pro to get all your questions answered.

But if I understand this question you are trying to figure out how to not pay cap gains on the rental side ... you can't since you cannot have both sides as a personal residence. Even if you let the rental side go dormant for 2 years you will still owe the cap gains and must recapture depreciation as ordinary income. This is the same if you moved into the other side and let your side go dormant. There is no way around this unless you can get the property titled into 2 individual properties and sold one now and one later ... but again even if you did you still have to recapture the depreciation.

Now if you have not been properly depreciating the property as required RUN RUN RUN to a local tax pro to get the mess fixed when you file the 2021 return. The form 3115 is not a DIY project.