2 Year Capital gains tax question

[John Hall]

So my GF is going to be coming up on 2 years in her house, I'm talking with her about renting it out after 2 years, and then buying another house to live in for another two years.

My question is, does the capital gains tax stay off of the property even if she is renting it, because she lived there for two years? Or does it come back onto the property because she's renting it out?

Thanks,
John

(I searched, but didn't find anything that was this specific. If it is out there, my apologies.)

[Steven Hamilton II]

John Hall,

The capital gains do not "stay off the property" they are excluded due to the property being a principal residence for 2 out of the last 5 years. For a single person you may exclude 250,000 of gain; however, for a married couple you may exclude 500,000 of gain.
The one exception is that you will be subject to depreciation recapture on the depreciation that was taken or was allowed.

Andy Chu, The first part of your post is correct in regards to the 2 of 5 years rule. There has been no change as of current.

Dwight Bradshaw,

The rule applies only to selling the property. If you convert it to a rental then you are going to be required to depreciate the property which will be required to be recaptured.

After the 3rd year of the property not being your principal residence you completely lose the "home sale exclusion(Section 121)" unless you live in the return for a combined 2 years.
You want to be sure that you close on your sale within the 3 year period.

-Steven the Tax Guy

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