Message Font: Serif | Sans-Serif
No. of Recommendations: 0
[[I have owned my condo for 8 years. I would like to rent it out for 6-12 months
and then sell it. Will I have to pay capital gains when I sell it at that time?]]

Technically no..if you go by the strict interpretation of the law for the exclusion of gain on the sale of a personal residence.

[[ My
accountant sez YES unless I move back into it for 2 more years or leave it
vacant. This doesn't seem correct.]]

But if you convert your principal residence to a rental unti (which you are intending to do), then you MAY lose the benefit of the gain exclusion...which only applies to your principal residence.

The IRS rules and regulations on this are very, VERY unclear(at least in my opinion). In my practice, I am allowing clients in a similar situation to claim the gain exclusion, but I'm having them sign an "air tight" CYA letter in case the IRA makes a clarification to this issue.

The IRS NEVER intended this tax break to other than a personal residence. Converting the residence to a rental unit DOES jepordize your gain exclusion. But, it appears, that it is not least not yet.

I'm hoping that IRS will issue additional regulations on this issue. Until then, I believe it to be a very very grey area.

[[ Does anyone know the law on this and if so
where would I find proof to show my accountant.]]

It's not a black and white thing. There is not one specific passage that you can show your accountant. It's a very grey area.

[[I have checked IRS
publicatons 523 and 527 but I don't see my particular situation listed.]]

Sadly, you are correct. Because this issue wasn't really addressed in the original legislation, IRS has carefully skirted the issue. So I'm afraid that all you can do is to show your accountant the rules regarding the gain exclusion, tell him that you will meet the 2/5 year exclusion rules, and have him take a strict interpretation of the law.

If he will not, your only option will be to find somebody that will. The problem is that in the next 12 months, after you convert to a rental unit, the IRS may come out with guidelines that will prove your accountant correct. It's just a crapshoot.

Your best bet is to sell the property while it's still your principal residence. That is the ONLY way (IMHO) to be sure that you'll receive the exclusion on the gain.

You can read my post on the gain exclusion in the Taxes FAQ area for some additional information.

TMF Taxes

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. It'll help you with your 1998 taxes, and it's never to early to start planning for your 1999 taxes. So just click on this link ( to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on and you'll be right at the home page. Check it out. Finally, if you need to get to the IRS web site, click on to go directly there.
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.