Exclusion of gain from sale of rental prop. primary home prior - Spidell

Exclusion of gain from sale of rental prop. primary home prior

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Message Board Exclusion of gain from sale of rental prop. primary home prior

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    • #305163
      Vijay Joshi
      Participant

      Client purchased a condo 3/1/14 and occupied till 7/31/2018 – for 4.4 years

      Then rented from 8/1/2018 till 9/30/2021  for about 3 years.

      If sold at a gain – can gain be excluded based being primary home for 4.4 years prior to being converted into rental.

    • #305169
      Sandy Weiner
      Participant

      To qualify for the 121 exclusion they must have used the condo as their principal residence for 24 months (2 years) out of the last 60 months (5 years) leading up to the closing date of the sale.  The “nonqualified use” reduction requirement for principal residences used a rental does not apply if the rental occurs after the property was used as a principal residence, as long as the taxpayer still meets the two out of the five year use  requirement.  We discuss this in our “Sale of Residence from A to Z” webinar.

       

    • #305259
      Janet Stotler
      Participant

      Well, one exception to Sandy’s response. If TP was military and moved due to PCS orders where the change in employment location was at least 50  miles further from the old home Please see pub 523 page 4 to get you started. I have used this myself.

    • #305286
      Sandy Weiner
      Participant

      Thanks Janet.

    • #305389
      Vijay Joshi
      Participant

      Thank you for the reply.

       

      What about the depreciation recapture – does that have to be done since it was a rental property.

    • #305637
      Vijay Joshi
      Participant

      Hello,

      Will there be a depreciation recapture on that.

    • #305640
      Sandy Weiner
      Participant

      From our on-demand webinar material “Sale of Residence from A to Z”:
      <p class=”NormalBA105″>The home sale exclusion does not apply to any portion of gain attributable to post-May 6, 1997, depreciation. Post-May 6, 1997, depreciation must be recaptured and included in the taxpayer’s gross income. The gain attributable to post-May 6, 1997, depreciation recapture is not taken into account in determining the amount of gain allocated to nonqualified use.</p>

    • #305645
      Mark Bole
      Participant

      If sold at a gain – can gain be excluded based being primary home for 4.4 years prior to being converted into rental.

      No.  The exclusion is based on being the primary residence for two out of the five years prior to sale.

      Then rented from 8/1/2018 till 9/30/2021 for about 3 years.

      Three years from the last date used as a primary residence (7/31/2018) is July 31, 2021, so if the rental activity continues to 9/30/2021 and then is sold, there will be no exclusion available.  Sale must occur by 7/31/2021 to be eligible (ignoring the exceptions, if any apply).

      Also, “depreciation recapture” is not applicable under Sec 121. Rather,  what matters is Sec 1250 gain, which is capital gain taxed at up to 25% rate and not eligible for exclusion under Sec 121.  Sec 1250 gain is “the part of any long-term capital gain on §1250 property (real property) that is due to depreciation allowed or allowable after May 6, 1997.

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