I bought my house on 3/31/2016 and moved out on 7/31/2018. when do I need to sell the house by to avoid capital gains tax?

[koolman4404]

I am currently renting the house out and want to sell it soon. really want to know how best to reduce my tax burden.

[Critter-3 · Accepted solution]

It needs to be a primary residence for 2 of 5 years ending on the sale date...  so the 2 years was 7/31/16 to  7/31/18  so you must sell by 7/30/21.

[Critter-3]

Of course I hope you have been taking depreciation as required ... if you have not then seek local professional assistance to get this corrected on  the 2020 return.   And part of the profit will be recaptured depreciation and that will be taxable ... you cannot exclude that.

[koolman4404]

this is great. thank you.

[koolman4404]

yes I have been taking depreciation.

[Anonymous]

you must have own and lived in the house as your principal residence for two years (730 days - temporary absences are ignored) out of 5 years ending on the date before the date of sale. so you have until 7/30/2021 to sell to get the principal home sale exemption (7/31/2016-7/30/2018 would be the two years).  however, if you have a profit, to the extent that it is less than or equal to the depreciation allowed or allowable you will pay taxes on the depreciation recapture (not more than the gain).   

you don't say whether you are married but if you are your and your spouse occupied the house for 2 out of the 5 years then filing a joint return the exclusion is $500,000. if single the exclusion is $250,000

as an FYI do not wait until the last minute to sell.  if the closing is delayed or you can't find a buyer you could lose the exemption which would be costly

the only way to avoid depreciation recapture if there is a gain and capital gains tax if the gain exceeds the exclusion is to do a 1031 exchange - you exchange your rental property for other rental real estate. any cash you get out of the deal would be taxable. you'll need a lawyer to make sure it is handled properly and find an exchange agent to hold the sales proceeds.   the one person I know who tried doing it on his own messed up resulting in the gain not qualifying for deferral  - he thought he could hold the cash from the sale until he bought a replacement property - not allowed. 

[Carl]

Basically, you must close on the sale on or before 7/30/2021 to qualify for the "2 of last 5" Capital gains tax exclusion.  One day late and you lose.