We are selling our home after being rented for several years. We are military and have lived in the home for 2 of the last 15 years. It is my understanding that we would be exempt from witholding. We were given Form IT-AFF2 for our closing. This seems inaccurate. Which form should be used when closing as it only references the civilian 2 of the last 5 years. Thanky ou!
The IT-AFF2 is a simple affidavit. Nothing to do with taxes. In your closing package you will have an ALTA settlement statement. That statement has what you need on it, for reporting the sale on your tax return.
It is my understanding that we would be exempt from witholding.
That may (or may not) be true for federal taxes. But if the state taxes personal income, that may not be the case for state taxes.
Which form should be used when closing as it only references the civilian 2 of the last 5 years.
First, understand how the law reads. WHile I'm not going to look it up word for word, I'll try to explain.
For AD/MIL, the ownership period is "suspended" for a maximum of 10 years. It's not "extended".
The requirement is that the property was your primary residence for 730 days of the last 1826 days you owned it.
So if you purchased the house on Jan 1, 2010 as your primary residence and then moved due to PCS orders on Dec 31 2013, that means you lived in the house for 3 years, and owned it for 3 years. So you qualify for the exemption. The ownership day count was not extended. The day count "STOPPED" on Dec 31 2013.
If you were PCS'd back to the same general area on Jan 1, 2021, then the day count "resumed" on that date. So long as you close on the sale of the house before Dec 31, 2023, you will have lived in the property for 730 days of the last 1826 "COUNTED" days that you owned the property.
Read the rules in the IRS pub 3 ... I only see a max 10 year suspension not 15 ... https://www.irs.gov/forms-pubs/about-publication-3
right. So for military, it's possible to actually own the property for a maximum of15 years, having lived in it say (for example) the first 2 years of ownership only, and still qualify for the exclusion.
2010-2012 - Primary residence 730 days total
2013-2023 - rented it out and were PCS'd away for these 10 years.
2023 - returned on Jan 1 and day count resumed on Jan 1, 2023. Assuming they did not move back into that property, so long as the sale is closed on/before Dec 31 of 2025, they would qualify for the exclusion.