All Forum Posts by: Alexander Fichel

@Dave Foster I will definitely get a CPA, not going to risk it. But the general sentiment I get here is that as long as you own the property and also occupy it for 2 years, you are good. At least in this scenario where you are not really renting out anything. 

So at least 2 years where owning and living in it overlap. I will just leave it at that and not go into the more complicated scenarios. To me the rule how I understand it, just says to qualify for the exclusion, the most you could get away with is at least living in the property for 2 years in the last 5 years of you owning it. If you lived in it for 1 year, you don't qualify. 

I don't really think it matters whether you rent it out or not when you are not living there. Thank you guys for shedding some light on this, it was driving me nuts :D

Thank you @Dave Foster. What scares me is what if the CPA I contact also finds it confusing and makes a mistake :O

The only reason I got worried is after I recently heard how one of my teacher's accountant made a mistake and they ended up having to pay fees and penalties and backtaxes for 4 years after IRS audited them. Kind of scary. I was also surprised to later learn that you are still on the hook if you underpay the taxes, not your accountant. Kind of eye opening for me.

Does nobody find this wording super weird??

 (From IRS "Eligibility Step 2—Ownership")

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing). Why can't they just say - have to be your primary residence for 2 years in the last five years prior to sale ("Eligibility Step 3—Residence"). 

It sounds completely illogical to own a home for at least 2 years in the last 5 years. Obviously I have to own the home prior to the sale, and not before. I can't own a home for a fraction of the time. BUT, I can live there as my primary residence a fraction of the time, i.e. 2 out of 5 years.

Seriously they should completely remove the illogical "Eligibility Step 2—Ownership" of the IRS Publication 523.

@Bill B. Agreed, sounds strange that you can be a renter and pass the residency test. 

But if it was the full five year ownership requirement, they would not write 2 years out of 5 prior to sale for ownership, they would just mention you have to own the home for at least 5 years prior to sale, not 2 out of 5 (and then have it be your primary residence for at least 2 years in that 5 year ownership period) 

But there MUST be some catch. Basically I am trying to figure out if I owe taxes even though I owned and lived at my house for 3 full years prior to sale. I always assumed I was exempt (sold in 2018)

@Natalie Kolodij You explained it really well, and gave a great example.

So to solidify my understanding, here is an extreme example:

1) You don't own the property and rent it from some landlord for 2 years.  (year 1 and 2)

2) Then you go live somewhere else for 1 year. (year 3)

3) You then come back and buy the property from the landlord and rent it out immediately. (year 4 and 5)

So now this qualifies you because you owned this property for the last 2 years prior to the sale, and was lived as a tenant in that property for the first 2 years.

This is the EXTREME case they are trying to cover right? Otherwise in the least complicated case, you just have to make sure that you live in your home prior to selling it for a minimum of 2 years.

I think I assumed that property had to be owner occupied for the residency requirement, but I guess you can also occupy it as a non owner, i.e. be a tenant.

Appreciate the reply @Natalie Kolodij, but doesn't it have to be owner occupied to count towards residence? IRS states that for residency requirement:

Eligibility Step 3—Residence

Determine whether you meet the residence requirement.

If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.

So if I owned a home for 3 years and lived in it as a primary residence, then I sold it. Am I eligible for 100% tax free sale? Or just 60%?

I've searched this forum and googled and checked irs.gov, and still fail to understand this requirement about ownership. Everyone seems to ask questions about the residence requirement which I get. You have to live there 2 non contiguous years out of 5. But for for ownership requirement, how can you own the home for at least 2 years out of the last 5? This wording is throwing me off. How can I not own the house preceding the sale. Why can't they just write, you have to own the house for at least 2 years proceeding the sale. What does the "within 5 years" mean? How can you own a home for 3 years, and then not own it for 2 years and then sell a home you don't own??

From irs.gov site:

Determine whether you meet the ownership requirement.

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

irs eligibility