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cmminder
New Member

I bought a home in 2013, was my primary residence until 2016. Now selling in 2019 for $50k profit. It was primary home for 2 of past 5 years. What is tax liability?

 
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4 Replies
Anonymous
Not applicable

I bought a home in 2013, was my primary residence until 2016. Now selling in 2019 for $50k profit. It was primary home for 2 of past 5 years. What is tax liability?

the occupancy rule is 2 out 5 years ending on the date before sale.     if you sell (close) on 9/1/19 occupancy would have had to ended after  8/31/16   thus the date you no longer occupied the house in 2016 is crucial.   

 

 

 

if you meet the rule you'll be able to exclude the full gain.  

I bought a home in 2013, was my primary residence until 2016. Now selling in 2019 for $50k profit. It was primary home for 2 of past 5 years. What is tax liability?

You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.

 

See https://www.irs.gov/taxtopics/tc701

I bought a home in 2013, was my primary residence until 2016. Now selling in 2019 for $50k profit. It was primary home for 2 of past 5 years. What is tax liability?

What was happening with the house for the three years you did not live there? Was it a rental?
Hal_Al
Level 15

I bought a home in 2013, was my primary residence until 2016. Now selling in 2019 for $50k profit. It was primary home for 2 of past 5 years. What is tax liability?

 

If it was a rental or you otherwise claimed a depreciation deduction (e.g. home office), you will be taxed only on the depreciation recapture.  Since  there was less than 5 years between moving out and selling** , you do not have to reduce your $50K exclusion for the period  non qualified use.

 

In TurboTax, at the page where it asks if you had any other use of the home it says: "Note: if you used your home for reasons other than primary residence, after it was no longer your primary residence, select 'no'''.

When you enter the home sale in Turbotax (TT), and follow the interview carefully, TT completes the "Home sale work sheet" to handle that complex calculation of the partial home sale exclusion, non qualified (rental) use capital gain and depreciation recapture.

 

Example: you bought the home for $50K and sold it for 100K. During the three years you rented it, you claimed (or should have claimed)  $4000 in depreciation. You actually have a $54K profit.  Only $4K will be taxed.  Depreciation recapture is taxed at your marginal rate, but not more than 25%.  $4000 x 12% = $500 tax (+/-)

 

** A different 5 year rule -- "Any period of nonqualified use does not include: any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home"

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