Capital gains

[Btodd620]

For the primary residence exclusion, do I have to live in the home 2 of the first 5 years of ownership. Do I have to own the home for 5 years or just live in it for two. Also do the years have to be consecutive? 

[Contented]

The years do not have to be consecutive and you do not have to live in it or own it for 5 years.  However, if it started as a rental the tax situation is different than if it started as a personal residence.  Which was it for you?

[Vanessa A]

You have to own the home for 2 out of the last 5 years.  The years you live in it do not have to be consecutive.

[Btodd620]

I do need to own the home for 5 years to qualify for the exclusion right?

[Vanessa A]

No, you need to own it for 2 years. 

[Btodd620]

I had planned on flipping it so I purchased in my business name but lived in the house while fixing it up. I then refinanced it and kept living in it for a while before renting it. I lived in it for a year, then rented it for two and then I lived in it for another year but now I’m renting again. It’s convoluted and I’m not sure how much I’ll need to tell the irs or if I can just say I’ve owned it for 4 years and lived in it for two now I’m selling. 

[Contented]

That is correct.  It only takes two years, unless it was a rental property first.  Then you would get a partial exclusion based on how many years you rented it to someone and how many years you lived in it.  Example:  If you rented it out for 2 years and then lived in it for 2 years and then sold it you would pay taxes on 50% of the capital gains (assuming they are under the 250,000 per owner threshold.)   I just noticed your new reply.  You should qualify for the full exclusion since you lived in it first and fulfilled the 2 year minimum.

[ColeenD3]

You need to tell the IRS everything pertinent to the situation. If you rented it, you need to recapture the depreciation. If you owned and lived in the home as a primary residence for 2 out of 5 years before the date of sale, you potentially qualify for the exclusion.

When determining the amount of time you actually lived there and it was your primary residence, you need to count the days. Some years have 365 days and some 366 days. All that is required is a total of 24 months (730 days) of residence during the 5-year period.