The $250,000/$500,000 Home Sale Tax Exclusion

[Manuel Naranjo]

Hello my BP mates!!

Just have a little question about sale tax exclusion. I purchased a townhouse back in 2008 and lived there until December 2014 when I rented the property and moved to a single family home. I sold the rental property in June 2017 (to be between the 5 years period the IRS mentioned) to be eligible for the$250,000/$500,000 Home Sale Tax Exclusion. However, when I was filling my taxes last week, my CPA (future former CPA) didn't know much about how to apply this exclusion on my taxes because it was a rental by the time I sold the property. His answer was "I cannot find the code to do this, I need to look for it". I'm wondering if any of the more experience CPA members can give a hand on this so I can guide my CPA and close this chapter of my life with him. Thanks!

[Logan Allec]

@Manuel Naranjo As long as you didn't use the home sale gain exclusion on another property in the last 2 years, you should qualify for the full exclusion.

IRC §121(b)(5)(C)(ii)(I) states that otherwise nonqualified (e.g., rental) use would not include any period after the last date that the property is used as the principal residence of the taxpayer or the taxpayer's spouse, so it essentially doesn't matter that it was a rental from December 2014 - June 2017 for purposes of the home sale gain exclusion since the last date you lived in the property as your principal residence was before you rented it out.

Depreciation recapture is another story.