Converting rentals back to primary residences

[John Kraakevik]

Twenty years ago, I converted my primary residence into a rental property.  From what I have read, by moving back to the rental, I can only exclude the proportion of time I lived there-ten years of the last 30 years ,to avoid capital gains tax and recaptured depreciation tax.  Can I move back to the house and still claim living there 2 out of the last 5 years to avoid ALL taxes?

I am thinking  also of  converting my present residence into a rental.  Since I refinanced, this property would have a terrific cash flow.  However, I am near retirement age so the homestead exemption and no taxation on capital gains comes into play.  

I am interested in purchasing a third property to build up additional cash flow.  Suggestions anyone?

I hold both properties in a family trust if that is relevant.  

[Dave Foster]

@John Kraakevik an,  When you convert a house from rental to your primary residence you will have to meet the residence requirement of 2 out of the 5 years immediately prior to sale as @Scott Mclaren said.

But you are right there are some limitations on how much gain you get tax free. Scott, you'll want to check exact numbers with your accountant as well.

You'll have to recapture any depreciation since 1997ish and you only get to prorate between times of qualified use (as primary) and unqualified use (as a rental) since 2009.

You can thank the "Housing Assistance Tax Act of 2008" for this lovely twist.

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