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Financial Planning / Tax Strategies


Subject:  Re: Capital gains on homes Date:  12/7/2000  5:03 PM
Author:  TMFExRO Number:  42616 of 128039

I'm trying to figure out if I should sell my home or keep it as a rental. I've lived in it for about 2.5 years and would walk away with about $60000 if I sold. If I keep it as a rental, when would I lose the tax exclusion? I read the Fool's discussion on this. It sounds like if I sold it within 3 years after that, I could still exclude the gain based on the 2 out of 5 years rule even though it wouldn't be my current residence. I would appreciate people's comments on this. Am I right?

Yes, you are. Since the exclusion rule doesn't require that it be your principal residence at the time of sale, anytime within 3 years after you move out would work.

And does anybody have any other advice, opinions on this?

If you convert it to a rental, you start taking depreciation, and you have to pay tax on that when you sell, even though the sale meets the exclusion. See IRS Publication 527 and the FAQ.

If when I'm ready to sell it, there's not a renter, can I include the time it takes to sell as part of 2 of the 5. Meaning, how does a home qualify as a principal residence. If no ones in it, then I could call either one a principal, right?

Wrong. If no one's living in it, you aren't living in it, and if you aren't living in it, it's not your principal residence. Do not try to get cute with this.

Phil Marti
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