Pay capital gains tax after using my house as a rental?

[Joe Szymczak II]

Hello BP community!  I have owned my house for over 8 years now and it has appreciated a good amount.  I know that if I were to sell it outright I WOULD NOT have to pay capital gains taxes on it.  However.... I would like to rent it out and move into another property.  I have heard that once you rent out a property if you were to sell it later you MUST pay capital gains taxes on it.  Is this true?!? Please say it ain't so!  Thanks in advance for all the help! 

Joe

[Natalie Kolodij]

Originally posted by @Joe Szymczak II:

Hello BP community!  I have owned my house for over 8 years now and it has appreciated a good amount.  I know that if I were to sell it outright I WOULD NOT have to pay capital gains taxes on it.  However.... I would like to rent it out and move into another property.  I have heard that once you rent out a property if you were to sell it later you MUST pay capital gains taxes on it.  Is this true?!? Please say it ain't so!  Thanks in advance for all the help! 

Joe

Hi Joe, 

Since you've occupied the home for 2 of the last 5 years you qualify for the 121 exclusion. 

This means that you can now rent the home for 3 years from the point you move out and you will still qualify, as you will have still occupied for 2/5 years. 

However, there may still be depreciation recapture on the years it was rented/depreciated. This will be at your ordinary tax rate up to 25.