We are debating between selling our current home and renting it out. If we were to rent and sell sometime later down the road, would our gain be taxed as an investment gain or, because it was our primary residence for many years, would we still get the standard tax break?When you sell your primary residence, the IRS looks back over the last 5 years from the date you sold it to see if you lived in it for at least 2 years to be able to exclude your gain. So that means you could rent it out for 3 years, then sell it and still exclude your gain (upto $500,000).However, by renting it out you will be able to depreciate the house. What you depreciate (lets say you depreciate $3,000 over the 3 years) will not be excluded from your income (meaning you would have to pay taxes on it.) So if the gain from your house was $53,000. You would pay taxes on $3000 and exclude the $50,000. Off the top of my head, I can't remember, but I think that the $3000 is taxed as ordinary income (meaning you won't get capital gain rates.) Hope this helps. As always ... talk to a tax professional ... the fees are usually deductible.
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