Convert Primary Home to LTR - 2 year tax benefit?

[Michael Robinson]

Hi all,

I'm planning on converting my primary home into an LTR. I've lived in it for 21 months... I believe there's capital gains tax benefit (when I sell the house down the road) as long as I have lived in the house for at least 2 years.

Staying for the extra 3 months (to hit the 2 year mark) presents a lifestyle and financial burden. I'm trying to get an idea on how much tax benefit I would get (down the road) if I suck it up and stay the extra 3 months.

FYI - The property has already appreciated $170k and I expect it to keep growing. 

How can I determine potential tax benefit of staying 3 months verses moving now?

Thanks

Michael

[Natalie Kolodij]

Do you plan to sell in the next 3 years? 

If so you'll want to stay 3 more months. Then when you sell you'll be able to exclude up to $250k/$500k of gain tax free. 

It's an all or nothing in this situation - so if you hit 24 months you're good, if you don't you get to exclude 0. 

The rule is 2 of the most recent 5 years. So once you move out and convert to a rental you can rent it for up to 3 years and still sell tax-free. 

If there's no chance of selling in the next 3 years then there's no beneift to hitting that 24 month mark. Once you're past the 5 yeras the exclusion is gone completely.