Message Board › Exclusion of gain from sale of rental prop. primary home prior
- This topic has 7 replies, 4 voices, and was last updated 1 month, 1 week ago by Mark Bole.
June 9, 2021 at 3:06 pm #305163Vijay JoshiParticipant
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.
June 9, 2021 at 3:44 pm #305169Sandy WeinerParticipant
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.
June 10, 2021 at 11:41 am #305259Janet StotlerParticipant
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.
June 10, 2021 at 1:41 pm #305286Sandy WeinerParticipant
June 11, 2021 at 4:57 pm #305389Vijay JoshiParticipant
Thank you for the reply.
What about the depreciation recapture – does that have to be done since it was a rental property.
June 15, 2021 at 2:48 pm #305637Vijay JoshiParticipant
Will there be a depreciation recapture on that.
June 15, 2021 at 3:01 pm #305640Sandy WeinerParticipant
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>
June 15, 2021 at 3:42 pm #305645Mark BoleParticipant
“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. “