Capital gains tax waiver when renting out primary residence

[Rick Im]

I work in academia and have three months of summer break and one month of winter break. My wife and I are considering renting out our primary residence during this time while we live elsewhere or travel. To qualify for the capital gains tax exclusion, is there a limit on the number of days we can rent our home?

I found the following information on the IRS website:

I am in academia and have 3 months of summer break. Me an my wife are thinking about renting out our primary residence during time while living in other place or traveling. If we want to waive capital gains tax, is there a limit how many days I can rent?

I found the following information on IRB website:

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.

If you were ever away from home,

you need to determine whether that time counts toward your residence requirement. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone).

Based on this guideline, my interpretation is that as long as I reside in my primary home for at least 4.8 months per year (since 24 months over five years equals 4.8 months annually), I can still qualify for the capital gains tax exclusion. Is this understanding correct?

Rick

[Natalie Kolodij]

There's more to it than that. 

Non-qualified use is any time during the period the home wasn't used as your qualifying principle residence. If rental use occurs before a most recent period of qualifying use; it's typically non-qualified use. Non-qualified use time results in taxable gain when you sell; even if you've met the 2/5 year rule as well. 

One of the exceptions to non-qualified use is: Short Temporary absences. 

I inserted the code below which has examples as well. 

The examples show that: 

A 2 month temporary absence and renting during that time would be okay. 

But that a 1 year span of time away from the home would not qualifying as short-temporary absence. 

(As for any times longer than 2 months and less than a year; anyone's guess) 

So just hitting the minimum of 4.8 months per year to equate a total of 24 months won't work. 

If you were to leave each summer for 2-3 months and rent the property, you're likely okay and that won't work against you. 

If you rent it for a month while gone for winter break, you will likely also be okay. 

If you do both....now things are fuzzy. More answers may lie in some tax court cases; but there's no definitive hard line of when an absence stops being "short and temporary" and if there is a limitation on a number of "short temporary absences" 






https://www.law.cornell.edu/cfr/text/26/1.121-1