Do I Have Non-Qualified Use on Sale of Home?

[torchm]

Trying to determine if the 2019-2021 period is reportable as  "non-qualified use" in the sale of home or falls within the "10 year" rule.

July 1997 - Aug 2015: Primary Home/Principal Residence

Aug 2015 - Aug 2019: Qualified Official Extended Duty (rented the home during this time)

Aug 2019 - July 2021: Returned from extended duty, bought a second home and used this new home a primary residence.  Continued to rent out the first home until sold it in Aug 2021.

Thank you!

[ColeenD3]

Simply described, "nonqualified use" means any use other than as a principal residence after December 31, 2008. So, for example, use as a second home, vacation home, or rental is considered "nonqualified use" beginning in 2009 or later. However, "nonqualified use" does not apply to time that falls into one of the following categories:

1. Periods of time after its use as a principal residence. 

2. Temporary absences due to a change in employment, health or unforeseen circumstances.

3. Any period (not to exceed 10 years) during which you or your spouse (if married) is serving on qualified official extended duty as a member of the uniformed services, the Foreign Service, the intelligence community, or as an employee or volunteer of the Peace Corps.

• Click on Federal Taxes (Personal using Home and Business)
• Click on Wages and Income (Personal Income using Home and Business)
• Click on I'll choose what I work on
• Scroll down to Less Common Income
• On Sale of Home (gain or loss), click the start or update button

1) Under Time you Lived In Your Home, answer No.

2) Did You Use This Home for Anything Other Than Your Primary Home? Yes

3) Another Home Sale? No

4) Reason for Sale. Other reasons

5) Other Reasons for Sale. Military

Also, please see "Worksheet 3. Determine if You Have Taxable Gain" in this LINK.

[torchm]

Thank you.  But,

I am confident that the period from July 1997 - Aug 2019 qualifies for exclusion from capital gains tax on the sale of the home.

What I'm not sure is whether the period from Aug 2019-July 2021 is considered "non-qualified use" or whether this time is also excluded.  During this period I rented the house out until I eventually sold the home in Aug 2021.  I had read that since I did not move back into the home following this two years of renting, the time is not considered "non-qualified use."

Please confirm.

Thanks!

[JohnB5677]

Yes, the period from Aug 2019-July 2021 is considered "nonqualified use".  You had returned from extended duty and did not live in the home.

However, you will not be excluded from getting the capital gains exclusion on the sale of the home because you only have to have 2 qualifying years out of the last five.

Follow the steps outlined by @ColeenD3 to confirm this.

[n2padres]

Would you please expand on #1?

We lived in our home as the primary residence for 15 years. My spouse's job was relocated so we rented it for the next 3.5 years, then sold it in 2021. 

We didn't move back in before selling so we have only 12 months of the last 5 years a the primary residence. That helps reduce the cap gains tax, but the way I read #1 is that no rental time after we moved is considered non-qualified use. Is that correct?

[AmyC]

Military orders change the rules of the game and eliminate the time period while gone.

The exemption requirements for military are as follows:

1. You were called or ordered to active duty for an indefinite period, or a definite period of more than 90 days.
2. You were serving at a duty station at least 50 miles from your main home, or you were living in government quarters under government orders.
3. You are one of the following:

• A member of the armed forces (Army, Navy, Air Force, Marine Corps, Coast Guard).
• A member of the commissioned corps of the National Oceanic and Atmospheric Administration (NOAA) or the Public Health Service.
• A Foreign Service chief of mission, ambassador-at-large, or officer.
• A member of the Senior Foreign Service or the Foreign Service personnel.
• An employee, enrolled volunteer, or enrolled volunteer leader of the Peace Corps serving outside the United States.
• An employee of the intelligence community.

@n2padres  You get the reduced capital gain for using it those 12 months. The rental depreciation allowed/allowable must be deducted from your basis. If you failed to take depreciation, you need to claim it. This is done outside of the program, here are   Instructions for Form 3115.