Question on 2 out of 5 year gain exclusion

Forum|Forum|5 years ago
July 12, 2020
1 reply
0 views

Hello tax gurus, I have a few questions on how to apply publication 523, in order to benefit from the $250k/$500k exclusion. Can anyone help?

1. I want to nail down the exact date to meet the 2 out of 5 years rule. Is it by days or months? I had a primary property since 2013. I converted it to rental and rented it out on Nov 1, 2017. Say I moved out on Oct 20, 2017 into a new property I bought. If I sold the rental property on Oct 30, 2020, would I meet the 2 out of 5 year rule in order to take exclusion?

2. The exact move out date and move in date is a blur for me. Which date is the one I need to consider for the 2 out of 5 year rule? The move out date? The rental start date? The new property purchase date? The move in date to new property? How can I find that exact dates in prior year tax filings or turbo tax?

3. How can I report such sale in turbo tax exactly in order to reflect this was a primary converted to rental? Where can I indicate it is within 2 out of 5 years or turbo tax knows how to calculate automatically?

Thank you so much.

@Carl11_2 @SusanY1 @Opus 17 @TaxGuyBill @DoninGA @BillM223 @VictoriaD75

Carl11_2

Employee

The look back starts from the closing date of the sale.

For conversion to rental:

If you moved out on or after the 16th of the month, that entire month counts as having lived in it as your primary residence.

For conversion to personal use:

If the last tenant moved out on the 16th or after, (or you converted the 16th or after) that entire month is *NOT* considered as the property having been your primary residence.

. If I sold the rental property on Oct 30, 2020, would I meet the 2 out of 5 year rule in order to take exclusion?

If you moved in on or before Nov 15th, 2018, and it remained your primary residence up to the closing date of the sale, it would qualify for the exclusion.

If you moved out on or after Oct 16, 2017 and it was your primary residence from "at least" Oct 15, 2015 or before, it would qualify for the exclusion.

Understand how the $5K exclusion works if you're filing joint. It's perfectly possible for you to qualify, but not your spouse (and vice versa). That's why the program will ask these questions for both tax filers if filing a joint return.

C

cc11jimmyAuthor

Employee

Thank you so much for the quick rely!

I owned from 2013. Positive I moved out after Oct 16, 2017 and before rental start on Nov 1, 2017. In that case, in order to qualify for the exclusion, do I have to close the sale of same property before Oct 31, 2020?

If it is sold on Nov 1, 2020, will I lose all the exclusion (all or nothing)? Reading something about safe harbor to achieve partial exclusion (unforeseen events etc.). Covid-19 is causing financial stress (furlough) and we want to sell to hold more cash. Would that allow me more time to sell?

To complicate the situation a bit more... we were doing MFS in prior years. Rental was under my spouse's filing. Next year we plan to do MFJ. Is that going to make reporting under Turbotax much harder, if not impossible?

Thank you again.

@Carl11_2

Carl11_2

Employee

Generally, I myself do a day count. Five years back from the closing date of the sale will have "at least" one leap year in it. So that's 1826 days. (the closing date of the sale does not count as a day for anything.)

So if it was your primary residence for at least 731 days of the last 1826 days you owned it, there's no need to get picky about move in/out dates.

Bottom line is, when using TurboTax the program will "know" based on the dates you enter, if you qualify or not. Either you do, or you don't. Period.