The $250,000/$500,000 Home Sale Tax Exclusion

8 Replies

Hello my BP mates!!

Just have a little question about sale tax exclusion. I purchased a townhouse back in 2008 and lived there until December 2014 when I rented the property and moved to a single family home. I sold the rental property in June 2017 (to be between the 5 years period the IRS mentioned) to be eligible for the$250,000/$500,000 Home Sale Tax Exclusion. However, when I was filling my taxes last week, my CPA (future former CPA) didn't know much about how to apply this exclusion on my taxes because it was a rental by the time I sold the property. His answer was "I cannot find the code to do this, I need to look for it". I'm wondering if any of the more experience CPA members can give a hand on this so I can guide my CPA and close this chapter of my life with him. Thanks!

@Manuel Naranjo As long as you didn't use the home sale gain exclusion on another property in the last 2 years, you should qualify for the full exclusion.

IRC §121(b)(5)(C)(ii)(I) states that otherwise nonqualified (e.g., rental) use would not include any period after the last date that the property is used as the principal residence of the taxpayer or the taxpayer's spouse, so it essentially doesn't matter that it was a rental from December 2014 - June 2017 for purposes of the home sale gain exclusion since the last date you lived in the property as your principal residence was before you rented it out.

Depreciation recapture is another story.

@Manuel Naranjo ,

May be he is not right kind of CPA.  We try to specialize on one area you know. 

But this is quite basic.

Yes you qualify for the exclusion.

However you have to recapture the depreciation that you took during it was a rental. 

The depreciation is taxed at maximum 25% or lower based on your marginal tax rate. 

@Michael Plaks  

@Lance Lvovsky

And more here are very knowledgeable. May be work with them. 

Thanks @Logan Allec for the quick response. I have not used the exclusion on any other property. What it kills me is that my CPA keeps telling he cannot find "the code" to put it on the system. So at this point, I really don't know what is holding him up. And thanks again for the info

Thanks for the mention, @Ashish Acharya

Unfortunately, @Manuel Naranjo , I agree that you need another accountant. Not knowing is semi-forgivable. Not being able to research it is not forgivable.

As my colleagues already said - yes, you can use the exclusion, and you will have to pay some taxes on depreciation you have taken during the 2.5 years of renting. Known as depreciation recapture.

I would not agree to file a return he prepared. File an extension and then ask one of us resident BP experts to review his work after 4/15. Right now, in the last 2 weeks of the tax season, most (if not all) of us are full and cannot help.

Yeah, Section 121 exclusion is pretty self explanatory, even for an eighth grader....time for s new cpa.

@Manuel Naranjo

The other posters are correct - it is section 121.

I think your accountant is having an issue because he is unsure of how to tell the software to exclude the gain on the return.

The sale still needs to be reported on the return. 

Please tell your accountant to see below from form 8949 instructions.

Basit Siddiqi, CPA
917-280-8544

@Basit Siddiqi That is great information. Just what I was looking for. Thank you so much for taking the time to help me.

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