Question

Capital gains exemption

Forum|Forum|2 years ago
October 18, 2023
1 reply
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Hi, Need some help on my situation.

I bought the home on 09/2017 and it was my primary residence until 12/2020 and rented it from 01/21 to 03/22 and sold it in 03/22. Does my capital gain fully qualify for tax exemption or does it only qualifies for the period i stayed in that home? Can someone please share your experience.

Not A Product Question

A

Anonymous_

Employee

See https://www.irs.gov/taxtopics/tc701

Since it appears as if you owned and used the home as your main home for the last two out five years leading up to the sale, you should qualify for the Section 121 exclusion (read the information at the link above) in its entirety.

However, there will likely be Section 1250 gain (depreciation recapture) for the depreciation deductions you took (or should have taken) during the time period that the property was used as a rental. TurboTax will make the appropriate calculations for you provided that you enter the property in the Rentals section of the program and indicate it was sold.

P

prmrAuthor

Thank you for your response.

So I end up paying taxes only on the depreciation (for the rental period, in my case 1 year) value when I recapture depreciation and no taxes on the capital gain for rental period?

A

Anonymous_

Employee

To simplify this, you would take your total capital gain (noting that the total gain is based upon your adjusted basis, which basis is reduced by your accumulated depreciation) and then the accumulated depreciation is taxed at a different tax rate (0-25% depending upon your other income).

Again, importantly, the program will do the calculations for you.