If I moved out in Jan 2022, when lose tax benefit?

Question

Hi guys,

I lived in a house from 2012 till Jan 2022.

In Jan 2022 I moved out and it became a rental...

My understanding, if I lived in the property for 2 out of the last 5 years I can sell it without paying taxes on the profit and without doing a 1031 exchange.

Do I understand correctly that if I sell before Jan of 2027 I am not going to have to pay any taxes on the profit I made?

Is it correct?

Dont want to sell it and then receive a bill from the IRS for half of the profit I made...

Thank you so much!

Michael Plaks · Answer

I'm perplexed why we have contradicting opinions stated on this thread. You do not have a 5-year window after moving out. You have a 5-year lookback, and two of these 5 years you needed to live there. So you only have a 3-yr window after moving out, and that window expired in January 2025.

At this point your options are:- pay the tax if it's manageable, and sometimes it is the best option- 1031 exchange- a couple of tax deferral alternatives similar to 1031 exchange- move back for 2 years to earn a partial exclusion as described by @Bill B.

Rick Pozos · Answer

@Mary Jay @William Whitley I dont believe that you can use the exclusion because it is passed the time period. At Jan 2025 you had lived there 2 years within the last 5 years. In February 2025 you had lived there 1 year and 11 months out of the last 5 years. I dont think it is 5 years PLUS 2 years. It is 2 years within the last 5.

You could move back into the property for 2 years AND THEN use the exclusion when you sell. In fact the way the market is right now, I would live there a year and maybe 9 months and then put it on the market. Just close right after the 2 year period.

Dan H. · Answer

Moving back into the home to obtain 2 of 5 years does not end up being able to exempt all the gains.   Consult your tax professional.

Bill B. · Answer

You can do a 1031 today.

You can move back in January 2026, live there for 2 years and sell January 2028. I believe this would allow you to take 12/16ths (75%) tax free (10 years 2012-2022 plus 2 years 2026-2028 as primary and 4 years as a rental.) BUT! Check with your CPA to make sure those first 10 years don’t get disqualified.  (Resulting in only 2/16th tax free (12.5%)) Then you can choose to do a 1031 with the reminding 25% or pay the taxes.

If this is hundreds of thousands in taxable gains and you like the house it might be worth moving back in if you do qualify for 75% tax free. Ps. You could sell your current primary tax free before moving in to it as well.

Dave Foster · Answer

@Mary Jay

No!  As @Michael Plaks said, you've missed your deadline.  You must have lived in it for 2 out of the five years immediately preceding the sale.  That means that you had until Jan of 2025 to sell it and still have lived in it for two out of the last five.  You would have qualified for the exclusion on the sale—except for depreciation recapture.

However, since the property was converted to investment, you are able to do a 1031 exchange and defer all of the tax and depreciation recapture and reinvest it into another investment property/properties.

Josh C. · Answer

Can’t believe everything ChatGPT says. Even if it comes from a CPA. Two cpas have it wrong in this forum. It’s super clear for the 250k/500k exclusion. 2 or the last 5 years primary residence.

Living there November 2020 through November 2022 and selling today = good. Living there since Jesus was born through October 2022 or anytime before = bad. (For section 121 exclusion)

Good luck and seek professional advice when 10s of thousands of dollars of taxes are at stake. There actually are some exceptions if you got divorced or other specific things, but above is the normal rules.

JD Martin · Answer

Based on her dates it sounds like she missed her window. She would have had to sell by January of this year in order to meet the requirement. Someone else already mentioned it but there is some mechanism of regaining some of it by moving back in for two more years, but with the rental time frame deducted.

Basit Siddiqi · Answer

it looks like you missed the windowYou can potentially look into doing a 1031 exchagne.

Jason Malabute · Answer

The rule you’re thinking of is the home sale exclusion. If you lived in the property for at least two of the last five years before selling, you can usually exclude the gain up to the IRS limits (depending on your filing status).

Since you lived there from 2012 until January 2022 and then converted it to a rental, you’d still be within that five-year window. So if you sell before January 2027, you’d most likely still qualify for the exclusion—meaning you wouldn’t need to use a 1031 exchange just to avoid capital gains taxes on most of the profit.

The main thing to keep in mind, though, is depreciation recapture. Because the property has been rented since 2022, any depreciation you’ve claimed—or should have claimed—will be taxable when you sell. The exclusion doesn’t wipe that out, although it does cover most of the regular gain.

Every situation can differ depending on filing status and how depreciation was handled, so it’s best to double-check the details with your CPA before listing, just to avoid surprises when tax time comes.

If I moved out in Jan 2022, when lose tax benefit?

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