Question

Capital gain help

Forum|Forum|5 years ago
April 30, 2021
2 replies
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I bought a house and was my primary residence for 11 month, due to being terminated from work, I moved to another city for a new job which is 150 miles away,,I rented out the house for around 22 months, as I was hoping to go back but couldnot, then I sold the house.

do I pay the full capital gain Tax.

I spoke with 2 CPA one of them said you will get half the waiver as married tax jointly so the waiver will be prorated to 11 month so roughly 225000, and the other CPA said since it was rented house=investment house then you have to pay the full capital gain and no exemption for you.

I am very confused whom to believe.

Carl11_2

Employee

The rules says that if you lived in the house as your primary residence for 2 of the last 5 years you owned it, couting back from the closing date of the sale, then up to $250K is exempt from being taxed. ($500K if married filing joint).

There are exceptions, with one of them being if you had to move as a job requirement. In that case, proration is allowed. So in your case, that would mean 11/24 of your gain would be tax exempt.

But also note that if the house was rented, the depreciation you are required to recapture in the tax year you sell the property is not included in the rule. So you will pay taxes on the recaptured depreciation no matter what.

See IRS Publication 523 page 6 at https://www.irs.gov/pub/irs-pdf/p523.pdf#en_US_2020_publink100073096 for more details on the requirements to qualify for the partial exclusion.

G

Good2323Author

Appreciated the reply,

-The rule mentioned 5 years, does that mean I should have been owning the house for 5 years?

-The Title company will send the form 1099 to the IRS and then at the time of Tax preparation the CPA will put the rational for the exemption?

- Did you go through this before or this is your interpretation to the rules, as I read different opinions in other thread.

-I even called IRS and after 1.5 hour of waiting to speak to a Tax consultant, he was not able to answer my question.

A

AmeliesUncle

@Good2323 wrote:

will be prorated to 11 month so roughly 225000,

That is correct. The $250,000/$500,000 exclusion is prorated, so you can exclude up to $225,000-ish. However, that does NOT cover the depreciation you were able to take while it was rented.

So if your profit is less than $250,000-ish, you will only pay tax on the gain due to the depreciation.

Hal_Al

Employee

Having been a rental (after being your primary residence) does not disqualify you from claiming the home sale exclusion, as long as the 5 year rule is met. You may exclude your capital gain (except depreciation recapture) up to $225,000-ish (11/24 of $500K; Married Filing Jointly)

G

Good2323Author

Thanks a lot, Iowned the house for a total of 3 years, so not sure if this will meet the 5 years, are you a CPA or experienced the same situation before.