If I moved out of my primary residence two years ago and since then I have been renting it out. Will I have to pay capital gains taxes if I sell it now?

For real estate property sale, you can exclude up to $250,000 of gain ($500,000 if you are married jointly) on the sale of your home. In order to qualify for this exclusion, you need to meet the eligibility test.

The eligibility test is as follows :

  1. You are eligible if your home was your primary residence at least for 24 months during the 5 years that is leading up to to the date of sale.
  2. There is no continuous stay of 2 years required i.e 730 days or 2 years. You could have lived multiple dates in your primary residence in those 5 years. For eg: You may have stayed Jan & Feb, moved out in March. Moved in April, moved out June etc.
  3. During the 2 year period, if there were shorter absences due to taking vacation or work trips etc. they are considered as a time you lived in your home. In other words, they count towards the 2-year requirement
  4. If you have a disability, your eligibility requirement is 12 months out of 5 years leading up to a sale. Also, any time spent on healthcare facility would count towards the 12-month requirement.

So, the answer to your question is if your stay meets the criteria above then you can take the deduction.

Real estate transactions are complex.

You can very easily miss out on important tax deductions relating to your rental income or end up doing incorrect gain/loss in real estate calculations that can be very costly especially if you need to amend a tax return later on.

Therefore, we usually recommend that you consult a CPA or tax professional who can provide the right guidance and help you file your taxes



** Based on our response to a question on quora.

Posted In: Tax

Go Back