Capital Gain Exclusion: Selling Old Primary Residence Converted into a Rental [Tax Smart Daily 051]

[@SinanDM]

Thanks for the clarification of non-qualified use at 6:00 mark. Most CPA just talk about 2 out of the last 5 years and neglected to mention the gotcha of converting rental to primary use. Thanks for calling it out.

[@TheRealEstateCPA]

Thanks for watching!

[@nct005]

Love this video, thank you for posting. As a follow up video, can you discuss the original basis when the property was purchased and if the basis changes upon converting to a rental? Using your example - lets say you purchased the home 12/31/2016, live & use till 12/31/2018, rent from 1/1/2019-6/30/2021, then sell. I'd be interested in the basis used to calculate capital gain, especially considering the appreciation that occurred during the first two years.

[@alexgauthier7128]

Thank you so much! I have owned a house for 3.5 years. I used it as my primary residence for the first 26 months and have rented it out since. We were told by a CPA that since the property was last used a rental property we would have to do a 1031 exchange if we wanted to avoid taxes. Thank you for so clearly laying it all out and for pointing me to US Code 121.

[@kimvannatter5214]

Oh gosh, thank you SO MUCH for this video. We sold our rental property when we did cause we were running with the 5 year lookback window- we lived in it over 2 years then rented close to 3 years before selling. I was starting to think we messed up selling it while it was being rented and were going to pay anywhere from $10k to $25k. This just confirmed that we did it right.

[@yuegan1939]

Thank you so much! I heard people talk about pro rate rules but it's the only place where I learn the detail.

[@lnkinc6823]

Thank you for an amazing video came right in handy on the exact thing that we've been going over on one file but my question is how do you report the part that is for depreciation where does

[@mahamuzaffar]

Very helpful. In this video at time 5:25 you mentioned that the taxes are still owed on the depreciation recapture. Can you provide some reference regarding that. I am in a situation, where one of my tax adviser is saying that I owe taxes on depreciation however, another of my tax advisor is saying that I do not. Any guidance would be highly appreciated.

[@zang9147]

Regarding your statement at 5:50: I believe the seller would pro-rate the gain, then apply the gain available for the exclusion to the limits in 121(b)(2)(A). I don't think the seller would not be pro-rating the gain limitations themselves.

[@liu5755]

I lived in a property for 5 years. Then I moved out and turned it into a rental property. It's rented for 12 years. I moved back and turned it into my primary residence again. I lived there for 2 years. Am I qualified for a full Sec. 121 exclusion of gain?

[@GMUTaylor6]

Good question, but from my research it sounds like no. After the first 3 years of renting you no longer qualify. Once you moved back in for 2 years you again qualified but now using the prorated calculation (primary res/total years owned). That is my understanding but I would love for a CPA to tell me different

[@HappyPenguin75034]

No

[@Csharpflat5]

Yes over 2 years non qualified in last 5 years. Still have to pay back deprecation recapture.

[@saigonphi]

I have the same question, but can't find the answer. lived in property 10 years, rented 5 years, make it vacation house 12 years (no renting), move back in as primary resident 2 years before selling it. Purchased + improvement + commissions - depreciations = $400K + capital gains $500= Basics = $900k, sell price = $1.1mil , = 1.1 minus $900= $200k taxable?

[@tk4c415]

@@Csharpflat5 not a full exclusion. I think only about 38% of 250/500

[@christopherbutcher5373]

I'm active duty military and purchased a home in San Diego in Dec 2012. I received orders and had to relocate in July 2015. I rented the property until May 2024 for a total of 8 years ten months. I know there is a military exemption where you can suspend 10 years of look back to make it 2 out of 15 years rather than 2 out of 5. I did take depreciation for the years rented at a rate of 12,600 per year with an original purchase price of 347,000. I just sold for 800k. I am married filing joint and trying to figure out what I can expect to pay.

[@GATSBYGH]

Hello, I have a question: I purchased and preconstruction house intended for my primary residence. Due to financial hardship, I rented it out after 6 months. I then sold it a year afterwards as I couldn't keep up the mortgage payment anymore. If I get a letter from the tenant stating that I still occupied one room in the house, will this be enough to get me exempted from capital gains? Pls. any body can help

[@rebeccacurtis1314]

Thank You! Very useful. Always wondered that exact scenario.

[@artofrealtygroup3756]

Thanks for sharing. Quick question? What if you've owned 2 primary residences, lived in each for 2 years within the 5 year limit and both were converted to rentals after the 2 years each. How would that work as far as property gain taxes and exemptions?

[@etutlf4176]

We bought a condo in 2001. Lived in until 2007. Have been renting until now. Will move back and live there for 2 years as a primary residence. If we sell after 2 years, will we get the full 500K exemption?

[@tk4c415]

my understanding is , you live in a house for 5 years, you rented for 5 years, you moved back in for 2 years, you have 7 years qualified use and 5 years unqualified use. you owned the house 12 years. so you used the house 58%of the time as qualified. so you would get 58% of 500k or 290K I will be in a similar situation. I am hoping I am right to get some of the exclusion.

[@bindang7191]

What if I rent it initially for 2 years, move in for 2 years, and then rent it out for another 3 years before selling. Do I get the full 100%?

[@viviannguyen1454]

Thank you for the info. Really appreciate that. If i stay in my house for 2 years, then rent for ten years. Do i still get the full capital gain. If my kids stay with me in the two years , i add his name into the title, can he get the capital gain when i pass away and he sells it?

[@himaldhungel]

Great video. Can you please make sure if I understood it right. If I buy my primary residence in 2017 and used that property as my primary residence until 2022. Then I decided to rent it out. If I rent this property out for total of 3 years or less and decide to sale, I am still qualified for tax exclusion to avoid capital gain but still have to pay back depreciation expenses that I claimed while the property was used as rental home, is that correct?

[@kraigh-tx2co]

Hello, great video and thank you for posting. I have a similar question to a previous comment. We lived in a house for the 1st year of a 5 year lookback, converted to rental (due to a move), and then rented for the next 4 years. We qualify for a partial exclusion of 50%, so $250K married filing joint. Would the definition of "non qualified use" still apply to our situation?

[@binhvong5297]

What if I converted to a rental from primary 10 yrs ago? Would it pass the 5 yrs window and all 10 yrs will be non-qualified? Or would it be 3 yrs qualified plus 7 yrs non-qualified? Thank you for the video. Cheers.

[@jayoonkoo8657]

Thanks for the video! I have a question: I bought a condo and lived there for 2 and a half year. Then I rented it out to move into a new house. The total rental period is 17 years. If I move back into the condo and sell it after living 2 years, are the 17 years of rental period considered as qualifying use and can I get the full 121 exclusion of $500,000 as a married couple?

[@hemantb6505]

Stay in it for 2 years and rent for 3 more years and then sell it - and you'll get max benefit

[@needinfo2614]

I think you would have a pro-rated gain@@hemantb6505

[@kurtisroberts3588]

I still haven’t gotten a direct answer anywhere to - What if I lived in the home rented and moved back then sold? I have still met the 2 out of the last 5 year rule. Would I still qualify for the full exclusion? My tax person says no and we have to pay capital gains. Is that true?

[@justinhd4743]

There are 4 owners of a property, two people out of the 4 owners live in the property and these same people who live in the property took a cash out refinance to buy out the other 2 owners. My question is, who is responsible to file for the capital gain tax?

[@danielplummer9902]

Owned and lived in for 10 years rented for 8 moved back in for 2 years then sold to relocate. Whats my tax exposure? Married filing joint

[@kimla4807]

Question I purchase my house back In 1998 for $110K. N now sold for $285K. I’m single n have live over 20 plus years. Do I exempt capital gain for single $250K ??? Please explain

[@John-dg1zf]

What happens if you buy a house as a primary residence, live on the property in a guest house, and rent the main house.

[@AlexMai11]

Thank you for this. So if I bought and lived in my primary residence for 13 years and then move and decide to rent it out for 3 years and then sell, would I still get the capital gain exclusion?

[@af31ns]

That's what this video indicates. The opposite, having a rental and then living in it is where he indicates you'd have to prorate the exclusion.

[@needinfo2614]

Or having a personal residence, turn it into a rental, them move back for 2 years would be a pro-ration@@af31ns

[@audreytran4824]

If I own a property for the last 10 years and wanted to rent it out for the next 5 years. Then move back and live there for the next 2 years, would I get a full 121 exclusion or will it be prorated. Thank you

[@af31ns]

That's a great question, but it doesn't look like he's answering questions on this channel. Please post a reply if you figure it out. I'd consider moving back in for 2 years if I'd get the full exclusion, but my fear is it would be prorated.

[@shelleycharlesworth5177]

Thank you. I just liked your video. I am going to rewatch several times. I am a senior and my house -mortgage free-was built in 2009 for $1.2 million. The lot was paid for way long before 2009. Today, I think I can sell it for $2.3 million. I may want to do this within the next year and downsize--and buy another [smaller] house for $1.7 million. Two million three hundred thousand - one million seven hundred thousand = six hundred thousand. Is there any hope for me to pay less in capital gains?

[@tomnewton7642]

Thanks, I enjoyed your video. My question is on the $500K exclusion for married folks. We are planning on selling 2 homes in early 2022 in different states. Does the $550k exclusion only count for real-estate gains or do we have to add our other incomes?

[@HappyPenguin75034]

It’s on your primary! It’s the gain on primary sale

[@evansclassroom1648]

Bought a property and used it as primary residence for 18 month, moved out due to job change and rented it out for 3 years. Sold it after. Do I qualify for partial exclusion?

[@MsNoman1989]

Did you get an answer to this? In a very similar situation

[@urvesh0607]

What if I buy lived for 2 years and then rented for 15 years and to save taxes I move again to the same house? haha is it the smart thing to do?

[@stevenchanhk]

What if I purchase the house as rental on day 1 and then convert as primary residence and eventually sell it, how many years i need to live in the house in order to get the full 250k/500k exclusion?

[@TheRealEstateCPA]

You won't be able to because you'll always have a period of non-qualifying use that you would have to factor in.

[@wallyman8]

What about if you moved out of Your primary residence six years ago, rented it for six years and then sold it? Do you get to prorate $250,000 deduction?

[@tk4c415]

no. move back for 2 years

[@JohnJackson-ny7lx]

Very well explained about section 121 real estate sale gain exclusion. I’m in the same situation as your qualified exemption example own 2 out of 5 years(primary resistance from 2011 through 2017, then rented out from 2017 through August 2021) but I have questions. I’m in the process of selling my old primary property (in inspection stage), how would the closing title company know that this was my primary residence and I’m qualified for sections 121 exemption. Do I need to let them know that I’m qualified for section 121 sale gain exclusion for not completing 1099-s? Will I receive a 1099-S in January 2022 with this exemption? It would help a lot if you can explain the process prior to closing what to do or not to do about section 121 and 1099-s form. Thank you so much!

[@alexgauthier7128]

Hi John, were you able to figure this out? I am currently in the same process you were in (selling, expect to close in 20 days). Were you able to figure this out with your escrow company? Thank you!

[@JohnJackson-ny7lx]

I would let the settlement company know. Mine said they are required to report to the IRS of any selling.

[@krispy5139]

If I sell my primary residence and purchase another primary residence basically rolling all that money over to the new home.... do I still pay tax? No one talks about this....

[@HappyPenguin75034]

Primary gets 250/500k and you can do whatever you want

[@krispy5139]

@HappyPenguin75034 Sadly, they do not keep up with the housing market. Those exemptions should be at least 3x the amount now.

[@willnguyen4502]

So if im understanding correctly, u can only rent a primary for no more than 3 yrs. Otherwise, you would lose the capital gains exemption.

[@TheRealEstateCPA]

yes

[@HappyPenguin75034]

@@TheRealEstateCPAyou are the cpa hmm.

[@myagenthouston]

non qualified use affects the amount of exclusion or the amount of taxable gain? i am married = $500k max. if i rented it for 5 years, then moved in and stayed for 2 years and i have $140k gain then 5/7x 500=357 maximum exclusion or 5/7x140 = $100k is taxable ?

[@huym9262]

Luis, Great questions. I am in the same situation and was wondering if you have received the answer

[@lisasia6452]

what if i rented it for 7 years

[@lisasia6452]

.married, bought property for 550 , lived in it for 2 years then rented gor 7 years then moved back as primary residence for 2 more years . will i have full exclusion of 500 k . we are both seniors

[@sueanaphotography8822]

really!!!!! we have live in a house for 10 years then move out, used for rental, based on your explaination, we are qualified for 500000$ deduction??????

[@VividCollectiveWorks]

The IRS is a joke. Wow. Talk about convoluted. I think they spend their days discussing complicated ways of expanding the tax system.