Is this Tax Exempt or not?

7 Replies

I bought a house lived in it for 3 years, then rented it for 3 years, is it tax exempt? My CPA keeps using a complicated formula saying I owe a portion. Then I convinced him if it was my residence for last 2 of 5 years its tax exempt. But he says I will still have to pay in the depreciation that was used while a rental, correct??  Any help with sources to show please. Thanks

Tax exempt for what purpose? If you sell this year it’d be exempt for up to 250k capital gains I believe.

No tax advice given

Filed a extension, This is for a house I sold in July 2016, filing my 16 taxes.

Yes, you are exempt from cap gains IF you sold it Within 3 years of living there, and not a day more.  But Yes, you have to claim the depreciation taken and pay tax on that.....the exemption is only for cap gains.

@Terry Hall

@Wayne Brooks summed it up pretty well. Depreciation recapture tax for the 3 years you rented it.  The LT capital gains  max exemption is $250/500k single/married.

If you are paying your accountant and he is smarter than you -listen to him. If you can't trust him get another. 

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Hi @Terry Hall

It depends, but in a nutshell:

  • if you have a gain on sale, you would have to recapture some or all of depreciation taken, depending on how much gain you have. 
  • if you have a loss on sale, you would not have to recapture depreciation.

Adjusted basis for gain / loss calculations would have to include depreciation for the period the property was rented.

Couple more items to keep in mind:

  • to exclude gain on sale of primary residence, you don't have to live there in the last two of five years. You have to live there for two years (any periods) in the last five years. 
  • it is very important that you have established correct basis when you turned the property into the rental. Since you have lived in the house for some time, the basis would be lower of cost or market value on the day your have turned your house into rental property.

Hopefully this helps, but feel free to ask more questions.

@Terry Hall , It's the Housing Assistance Tax Act of 2008 and your CPA is right.

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