I have a tax question I'm hoping to get some insight on so any advice would be very much appreciated.
My wife and I are currently selling our home in Denver, CO. We have lived in the home for ~2.5 years. We are considering turning it into a rental month-to-month until Spring to catch a better selling market. If we do that and sell our home in say April of 2020, would we have to pay capital gains taxes on the profits from the sale since it had been a rental during our ownership? Would we not pay any capital gains taxes since we've lived in it for 2 of the last 5 years?
Thank you so much for any help anyone can provide!
my understanding is that you'll be okay as you've been there 2 of the last 5 years
@Kevin Goldthwaite You’re fine as long as you sell within 3 years from moving out. You’ll just have some depreciation recapture to pay back, for the time it was a rental.
@Wayne Brooks by that do you mean whatever we have to do to fix what the renters may damage?
Wayne nailed it.
As long as the first use of a home was your primary
And you both Own and Occupy it for 2 out of the 5 years prior to selling, you will qualify for a 121 primary residence exclusion and the gain will be tax free.
As mentioned, it will need to be depreciated during the time it's a rental, and the portion of that gain related to depreciation will be taxable on sale. If you only rent it for a short time that won't be very much though
You will be eligible for section 121 exclusion. However, you may have to pay tax on the depreciation claimed while the property was a rental.