Thinking of selling home yet concerned about tax burden

3 Replies

We have a lot of equity in our home and want to relocate. We lived in it for 1 year and then rented it for one year. After the renter we moved in again and have been living here for 18 months. My question is, can we sell it now or do we need to hold it for an additional 5 months so that we have lived in it for 2 consecutive years, in order to be able to avoid being taxed on its equity? We want to buy a similar home in another location to live in. Any advice would be greatly appreciated.

You qualify for the exclusion now (residing in it 2 of the last 5 years), But you will get a prorata share of the exclusion either way. The one year you rented it will be subject to cap gains (in addition to one of depreciation recapture) under the Qualified Use I believe it is called.  Example: rented for one year, resided in for 2 years, 1/3 of gain is not exempt; lived in it for 3 years, rented for 1 year, 1/4 of gain is not exempt.

This is because you rented it Prior to meeting the 2 years as your residence.