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My wife and I built a vacation home at the beach 1990. We have been renting it consistently every summer and depreciating it as an investment property. We have been thinking of selling the property and taking the cash and investing it in the stock market, to fund college costs and retirement, etc.

We were recently told that if we took the home out of the rental market for 2 years prior to selling it, we could change its' classification from investment to 2nd home. By doing this we will apparently be able to claim the $500,000 exclusion for capital gains and probably not have to pay any taxes on the sale.

My questions are:

1. Is this correct, regarding the exclusion?
2. What happens to the depreciation?
3. The home is in my wife's name only, does that limit the exlusion to $250,000?

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