capital gains tax sale of home

Forum|Forum|1 year ago
September 14, 2024
3 replies
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I am letting my Son live in the only home I own. He pays a small rent, that is far from market value, due to the outrageous rental cost these days. I now live in another home that I don't own with a friend of mine. I've read that a small rent that is not fair market value from a family member does not go on a Schedule E. nor is this property considered a rental, Is this correct?

Second Question

I plan on selling this home. I have owned this home since 2017. I used this property on and off as a vacation rental in the years 2020-2021. Fair rental days and personal used days were filed on Schedule E. for those tax years.

With the 24 month accumulative period of use of home out of five year rule/exclusion on capital gains tax, does the months my son lives/pays rent to me in the home count as MY personal use days (even though I don't live there) Will those months count towards the 24 months out of last five year rule? (refer to first paragraph) As stated I am now living with my friend. This is the only property I own. This ties in with question one, first paragraph. If I don't file a schedule E due to renting to family member, there is no way to document personal days used.

This is the only property I own. I assume the five years would be counted, dated back from the month/day/year the property gets sold/closes correct?

Anonymous_

Employee

@pattylovelife wrote:

.......I've read that a small rent that is not fair market value from a family member does not go on a Schedule E. nor is this property considered a rental, Is this correct?

Yes. Every day you rent at below fair market value is considered a day of personal use.

The income would be reported as miscellaneous income not subject to self-employment tax and not as rental income (i.e., not reported on Schedule E).

Anonymous_

Employee

@pattylovelife wrote:
......Will those months count towards the 24 months out of last five year rule? (refer to first paragraph) As stated I am now living with my friend. This is the only property I own.

It's not exactly clear so I will ask if this home is your primary residence (i.e., your main home where you live). I understand that this is the only home you own but is it your principal residence?

If so, then the time you used the home as your main home counts for the "two out of five year" rule.

Mike9241

@pattylovelife to qualify for the home sale exclusion it must have been your principal residence for any 2 years (24 months 730 days) out of the 5 years before the date of sale. your son occupying the property doesn't count. when a taxpayer alternates between two homes, the home that is used the majority of time during the year will ordinarily be considered the principal residence [which is the only home that qualifies for the home sale exclusion Reg 1.121-1(b)]