Cap Gains on primary residence changing... 2018 tax plan

13 Replies

When I typed in "2018 tax plan" into the BP forums, I was surprised that I couldn't find anyone talking about the Capital Gains rule to selling your primary residence. Currently you must live in your home 2 of the past 5 years in order to avoid paying capital gains and it is now moving to 5 years in the past 8 years. (sec. 1402 of the GOP tax bill)  

I would have thought that it would be all over the forums since it greatly affects the house hacking strategies, and a lot of people who are planning to sell next season. 

It is still 2 out of 5 years.

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@Joe Daurio
It was on the chopping block, but thankfully, it was removed. As mentioned above, section 121 remains at 2 out of 5 years.

Ahh, that makes sense then... I read through the 500 pages and was expecting more from it. 

Originally posted by @Joe Daurio :

 That did not make it into the final bill. You can thank the National Association of Realtors for our lobbying efforts on this item.  

I'm glad that change didn't make it into the final bill. What would be the benefits/reasons for increasing the time of ownership requirement?

Originally posted by @Marcus Brown :

I'm glad that change didn't make it into the final bill. What would be the benefits/reasons for increasing the time of ownership requirement?

 The benefits would have been higher tax revenue for the federal government.  The average hold time for real estate is 7 years, so half of homes are sold in under that time. So more tax revenue would be generated from the sale of homes.

Joe,

I agree with the rest of the posts.  There was no change to the Section 121 exclusion on capital gains for primary residences.

Is one able to move out of a primary house, turn it into a rental, then eventually move back in and make it a primary residence again?  Can you do all this and still qualify for the primary home capital gain exclusion?

@Albert C. I’d have to see the dates but if you qualify at all you’d likely have to reduce your amount of maximum gain excludable based on your period of nonqualified use.

@Albert C.

You can move out, rent it for up to 3 years, sell and still qualify for the exclusion.

If you move back before the 3 years - yes, you can still sell and use the exclusion, but not 100%. It will be prorated based on a somewhat confusing formula known as "nonqualified use." (Nonqualified use means the period during which the property was a rental.)

As @Logan Allec mentioned, the dates matter. If you do it wrong, you could actually lose the entire exclusion. For example, if you wait for more than 3 years to move back, you'll need to stay there for another 2 full years to get at least a partial exclusion.

Thank you Logan Allec and Michael Plaks for your responses.  

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