Selling of two homes in same year

Forum|Forum|5 years ago
March 1, 2021
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Hi..I purchased a property "A" in 2007 and I lived in it until Dec 2016. Thereafter, I rented the property and purchased a new property "B", which became my primary residence. The renter left in Oct 2019. I renovated the property "A" and put it up for sale. I was not able to sell the property "A" until Feb 2021. Also, in Feb 2021, I decided to purchase a new property "C", which would become my primary residence. I have put the property "B" for sale as well and hope to sell by March / April 2021. Will I have to pay capital gains tax on either property "A" or "B" OR or both properties "A" + "B", even if the gain on both properties combined is less than 500K? I am married and have been filing joint tax returns.

DavidD66

You will have to pay capital gains tax on property A, as it does not qualify as your primary residence. And since it was a rental property, you will have to pay depreciation recapture (to the extent you have a gain) on the amount of depreciation you were entitled to take while it was a rental. For property B, as long as you lived in it as your primary residence for 24 of the 60 months immediately preceding the sale of the property, you can exclude $250,000 ($500,000 if Married Filing Joint) of gain on the sale of the property.

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sk4000sk2Author

Buying a new property after selling a secondary property "A" will not consider an even exchange.

Opus 17

Employee

The idea that you can postpone the gain on selling your home by buying another home within a certain timeframe was written out of the tax law more than 15 years ago.

The current rules are relatively straightforward. You can exclude the gain on your main home if you have owned it at least two years and if you lived in it as your main home for at least two years of the five years before selling. In other words, because you rented home A for more than three years after you moved out, you do not qualify to take the exclusion on home A.

You appear to qualify to exclude the gain on home B.

Even if you had qualified to exclude the gain on both homes, you can only use the exclusion once every two years. And even if you did qualify to exclude the gain on home A, you must still deal with the depreciation and pay depreciation recapture.

A “like kind exchange“ allows you to postpone the gain on business property if, when you sell it, you acquire a similar piece of business property at about the same time. That might have allowed you to defer the gain on home A, but only if you had purchased a new home D to use as a rental property at about the same time that you sold home A. If you want to defer the gain on home A to buy a new rental home D, it may already be too late, and if not, you need to get on the stick and find a property and get an accountant to make sure you qualify.