Your plan should do you fine assuming the law doesn't change (wch I think it won't, seeing how popular it is--I think there would be some sort of riot if it changed now). As long as it is your primary residence (wch means in actuality--not just what you tell people--you actually have to consider it your home) for two out of the five years before you sell it, you can take up to $250,000/owner in gains tax-free." I disagree slightly. You will, IMO, still need to recapture depreciation from the time when the townhouse was rental property. You may wish to ask on the Tax board for a real pros take on the issue.I did ask on the tax board too and they came up with your combined replies. I'm not really sure how much capital gains will be left after recapturing the depreciation, but I'd rather pay 20% capital gains than 28% current taxes!Thanks everyone.
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