Capital Gain Exclusion: Selling Old Primary Residence Converted into a Rental [Tax Smart Daily 051]

Today's topic is about the $250,000 and $500,000 gain exclusion that you can get when selling a primary residence that is converted into a rental.
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Let's connect:

[yuegan]

Thank you so much! I heard people talk about pro rate rules but it's the only place where I learn the detail.

[SinanDM]

Thanks for the clarification of non-qualified use at 6:00 mark. Most CPA just talk about 2 out of the last 5 years and neglected to mention the gotcha of converting rental to primary use. Thanks for calling it out.

[nct]

Love this video, thank you for posting. As a follow up video, can you discuss the original basis when the property was purchased and if the basis changes upon converting to a rental? Using your example - lets say you purchased the home 12/31/2016, live & use till 12/31/2018, rent from 1/1/2019-6/30/2021, then sell. I'd be interested in the basis used to calculate capital gain, especially considering the appreciation that occurred during the first two years.

[rebeccacurtis]

Thank You! Very useful. Always wondered that exact scenario.

[alexgauthier]

Thank you so much! I have owned a house for 3.5 years. I used it as my primary residence for the first 26 months and have rented it out since. We were told by a CPA that since the property was last used a rental property we would have to do a 1031 exchange if we wanted to avoid taxes. Thank you for so clearly laying it all out and for pointing me to US Code 121.

[kimvannatter]

Oh gosh, thank you SO MUCH for this video. We sold our rental property when we did cause we were running with the 5 year lookback window- we lived in it over 2 years then rented close to 3 years before selling. I was starting to think we messed up selling it while it was being rented and were going to pay anywhere from $10k to $25k. This just confirmed that we did it right.

[lnkinc]

Thank you for an amazing video came right in handy on the exact thing that we've been going over on one file but my question is how do you report the part that is for depreciation where does

[mahamuzaffar]

Very helpful. In this video at time 5:25 you mentioned that the taxes are still owed on the depreciation recapture. Can you provide some reference regarding that. I am in a situation, where one of my tax adviser is saying that I owe taxes on depreciation however, another of my tax advisor is saying that I do not. Any guidance would be highly appreciated.

[kraigh-txco]

Hello, great video and thank you for posting. I have a similar question to a previous comment.

We lived in a house for the 1st year of a 5 year lookback, converted to rental (due to a move), and then rented for the next 4 years. We qualify for a partial exclusion of 50%, so $250K married filing joint. Would the definition of "non qualified use" still apply to our situation?

[zang]

Regarding your statement at 5:50: I believe the seller would pro-rate the gain, then apply the gain available for the exclusion to the limits in 121(b)(2)(A). I don't think the seller would not be pro-rating the gain limitations themselves.

[artofrealtygroup]

Thanks for sharing. Quick question? What if you've owned 2 primary residences, lived in each for 2 years within the 5 year limit and both were converted to rentals after the 2 years each. How would that work as far as property gain taxes and exemptions?

[GATSBYGH]

Hello, I have a question: I purchased and preconstruction house intended for my primary residence. Due to financial hardship, I rented it out after 6 months. I then sold it a year afterwards as I couldn't keep up the mortgage payment anymore.

If I get a letter from the tenant stating that I still occupied one room in the house, will this be enough to get me exempted from capital gains?
Pls. any body can help

[himaldhungel]

Great video. Can you please make sure if I understood it right. If I buy my primary residence in 2017 and used that property as my primary residence until 2022. Then I decided to rent it out. If I rent this property out for total of 3 years or less and decide to sale, I am still qualified for tax exclusion to avoid capital gain but still have to pay back depreciation expenses that I claimed while the property was used as rental home, is that correct?

[shelleycharlesworth]

Thank you. I just liked your video. I am going to rewatch several times. I am a senior and my house -mortgage free-was built in 2009 for $1.2 million. The lot was paid for way long before 2009. Today, I think I can sell it for $2.3 million. I may want to do this within the next year and downsize--and buy another [smaller] house for $1.7 million. Two million three hundred thousand - one million seven hundred thousand = six hundred thousand. Is there any hope for me to pay less in capital gains?

[justinhd]

There are 4 owners of a property, two people out of the 4 owners live in the property and these same people who live in the property took a cash out refinance to buy out the other 2 owners. My question is, who is responsible to file for the capital gain tax?

[danielplummer]

Owned and lived in for 10 years rented for 8 moved back in for 2 years then sold to relocate. Whats my tax exposure? Married filing joint

[viviannguyen]

Thank you for the info. Really appreciate that. If i stay in my house for 2 years, then rent for ten years. Do i still get the full capital gain.
If my kids stay with me in the two years, i add his name into the title, can he get the capital gain when i pass away and he sells it?

[John-dgzf]

What happens if you buy a house as a primary residence, live on the property in a guest house, and rent the main house.

[binhvong]

What if I converted to a rental from primary 10 yrs ago? Would it pass the 5 yrs window and all 10 yrs will be non-qualified? Or would it be 3 yrs qualified plus 7 yrs non-qualified? Thank you for the video. Cheers.

[bindang]

What if I rent it initially for 2 years, move in for 2 years, and then rent it out for another 3 years before selling. Do I get the full 100%?