Capital Gains on Sale of Primary residence converted to Rental
Please help me understand the Capital Gain implication on tax liability for the following scenario.
Purchase Date: Aug 2012 (Bought as Primary residence)
Lived There: Aug 2012- Sep 2014 (24 months)
Rental period: Sep 2014 – Apr 2017 (32 months)
Planned Sale date: May 2017 to Aug 2017 (so that 2 years of 5 years period before the sale is used by the seller as Primary residence).
Anticipated Capital Gains: 100K
Question # 1: Impact of depreciation will be recaptured and taxed at 25%
Since I convert it to rental property now for 3 years before the sale & if I claim 5K as rental property depreciation per annum, thus I am responsible to pay 25% tax on this 15K?
Question # 2: Is there any proration of the capital gain will be incurred to the period of rental?
Since we have 100K capital gains as a result of 5 Years of ownership, out of which 2 years are primary home and 3 years are rental – does IRS prorate the capital gains so that I do still have to pay 3/5th of the capital gain tax?
In that case if I sell as planned in 2017, I have to pay capital gains on $60K?
Thanks so much for your help!!!