I want to sell my rental and buy a primary home-taxes?!

[Gail W.]

Good morning BP experts! 

I'm an Accidental Landlord. Bought our home in Laguna Hills for about $350k back in 2002. Kids grew up and split, and we couldn't afford it anymore. By then, it was refinanced a few times to add a pool and such and the current amount owed is $550k.

We started renting it out June 1, 2016 to our friend who runs a Christian Sober Living. He has given us a 1099 (they are an LLC) each year for taxes, so it is documented on our returns.

His lease is up this August. We want to sell the house and use the proceeds to buy the little rental we are in right now. We want to use our VA loan to help us do that, as the proceeds from the sale of the rental house will not be enough to buy it outright, but close.

So if we lived in the Lag Hills house as our primary up until June 1, 2016...and then rented it out since... are we going to have problems with taxes? PLEASE use simple language because I'm still learning :/  (I told you- this is just NOT our forte!)

Some things that may matter, but probably don't at all:  It has an entirely new kitchen, and entirely all new flooring from an insurance covered slab leak back in late 2015.  It was recently refinanced again in 9/2017. It WILL need a thorough scrubbing and cleaning; 8 guys aren't exactly tidy. The bathrooms need upgrading.

[Eamonn McElroy]

@Gail W.

You should have a conversation with your CPA before you take any kind of action, including moving back into the rental.

Right now it would appear you meet the exception to non-qualified use if you sell before June 1, 2019.  You'd have to recognize 1250 gain of course but you wouldn't have to prorate for NQU.

Moving back into a property that has been a rental blows the exception.  Again, speak with your tax advisor who understands your facts, circumstances, and goals.  Trying to save pennies here might cost you dollars.