Hi JY2b! Thank you for joining us!
You asked, "What things do I need to consider tax-wise.and, Will I be able to claim my homestead exemption after living in it for 2 years?"
You will need to consider the caoital gains rules, regarding the exclusion of such gain on converted investment property to primary residence.
Taxpayers used to be able to trade into a rental, rent the home for a while, and then later move into and then after two years, exclude all or some of the gain under Section 121 Congress, however, amended Section 121 in order to limit the benefits of Section 121 when the property has also been used as a rental.
- if you acquire property in a 1031 exchange and then convert it to your primary residence, you must now own it at least five years before being eligible for the exclusion.
- The amount of gain that you can exclude will be reduced based on the time the home was used for something other than your primary residence. The exclusion allowed is calculated, by comparing the number of years the property is used for non-primary residence purposes, to the total number of years the property is owned by the taxpayer. For example: if you rented the house for 10 years, and then live in it for 5 years only 1/3 of the gain will be able to be xcluded. (5/15, so if there was a gain of $600,000 on the sale, you could only exclud $200,000)
In general, to qualify for a homestead exemption, a property must be your primary residence and must be located within the state in which the exemption is claimed.In terms of the qualification for a homestead exemption, it really depends on which state you are located in, as each state has their own defined rules for qualifying for this exemption. I would recommend for more information that you visit, your states website, for more specific information on the qualifications for a homestead property tax exemption in your area.
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Terri Lynn
