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March 23, 2021
Question

Capital Gains Exmptions

  • March 23, 2021
  • 1 reply
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Hello,

So from what I have read, you are exempt from capital gains if your profit from sell of a home is 250,000 or less and you lived in the home for 2 years. My question is how does the IRS know where you lived?  Do they use your postal address or address on file with your employer?  I lived in my home for 1.6 years and due to covid, I came back to Texas last summer when I found out my parents were diagnosed with covid and unfortunately my mom didn't survive. 😞    Anyhow,   the house was empty from May thru Sept at which time I returned then rented it out for the winter season.  So technically I have not lived there for 2 years but I have owned the home for 2 years now and of those 2 years, 6 months were rentals.  So again is there some other type of exemption or do I need to live there for another 6 months and if so how does the IRS verify.  I'm assuming they would used either my new postal address or the state I file in.  Thanks in advance 

1 reply

March 23, 2021

The section 121 exclusion is available when there is a profit on the sale of a principal residence and the owner owned and lived in the house 2 of the last 5 years.  There are some exceptions to the time test for "unforeseeable events" and sometimes you can qualify for a partial exclusion of the gain.

 

IRS does pay attention to the address you use on your tax returns and the address of rental properties on your tax return.  

 

If you have rented your house during the time, you will have to recapture the depreciation "allowed or allowable" for the period of rental use.

 

It makes a difference of when you move out of it and if you turn it into a rental property.

 

Please refer to the following link for selling your principal residence at a gain and possibly qualify for exclusion of some or all of the gain on the sale:

Capital gains for sale of principal residence at gain  

 

You can also refer to IRS Publication 523 for additional information:

IRS Publication 523

 

IRS publication 527