Selling rental - capital gains

[Brad Rondeau]

Hello, I bought a condo in Laguna Niguel CA in December 2009 (short sale) for $365,000. Today it is worth about $550,000. In 2009/2010 I did $29,852 of improvements including interior paint, carpet, remodel kitchen/bathroom, new AC/Furnace. I lived in the condo for about a year and then rented it out for the next 8+ years. Renters just gave notice and now  I want to sell it but I’m thinking I need to move back in for a while, so I don’t get killed with taxes on the gain. I need to do new interior paint and baseboards and carpet for about $7000. So –

Paid 365,000

2009 Improvements 29,852

2019 Improvements 7,000 (estimated)

Expected commission upon sale 33,000

Cost Basis? 434,852

550,000 – 434,852 = 115,148 (I believe this is my capital gain). I’m retired now living off savings. The year that I sell the house my income will be the 115,148 plus maybe 20,000 in interest/dividends/stock gains. Would it be 20% federal capital gains tax for the sale of the condo? I will be single when the house sells and believe I can have a gain of $250,000 without paying taxes as long as it is my primary residence for the 2 years before I sell it. Here is my question. If I live in it for only one year and then sell it – would 125,000 be tax free (this is what I read somewhere – that if you live in it for a percentage of the 2 years then you get that percentage of the 250,000). I really don’t want to live in it for 2 years so 1 year would be much better as long as I can keep from paying any capital gains tax. Also does CA work the same as federal (I believe the CA state tax is over 9% and I certainly don’t want to pay