2/5 Rule for Sale of Two Properties While in Military

[Sharon Li]

Im active duty military, and am planning on selling one of my homes (Property #1) in the next several months, which meets the 2/5 capital gains tax exclusion criteria of having both owned and lived in it for 2 of the last 5 years prior to selling (and my understanding is that the rule actually extends to 15 years for the military). My tenants in a different property (property #2) have interested in purchasing my home, and we had agreed on a deal several months ago, but at the time, they could not secure financing, so they continued renting. They unexpectedly reached out today and stated they they were close to getting financing, and asked if I’d honor the deal we originally agreed on. I’d meet the 2 of 15 rule (But not 5...I lived there prior to property #1)l and the total capital gains tax would not exceed $250k. However, since the sale would take place around the same time, am I correct in assuming that only one would be exempt? The gains for Property #1 would be significantly bigger, so would I need to sell that one first? Even though both meet the 2 of 10 rule (and I moved out of both due to military re-assignment).

[David Pere]

@Sharon Li @Scott Wolf that is correct, as long as you were moved away from your home due to PCS orders, and are still serving in the military, there is a 10-year extension on the 2/5 capital gains tax ruling. Happy to introduce you to a tax professional who works with service members if you would like more information on the specifics as I can't recall which section of IRS code addresses this.