When *exactly* is the 2 year mark to avoid cap gains?

20 Replies

My wife and I closed on a Condo Jan 19, 2017. Since then, it's appreciated ~120k (Seattle market + some renovations). I've read time and again that if we are live in owners for 2 years, there isn't capital gains upon selling (or at least 500k profit allowance we won't break). My question is exactly WHEN is that 2 years? We closed on Jan 19th, so if we sell on Jan 20th 2019, does that count? Does it need to actually be longer? Shorter for some reason? Just want to make sure we don't miss it by mere days. I'll put it on the market in December and require a close of Jan 20 onward if that is the magic date. Thanks! ASV

if (year is not divisible by 4) then (it is a common year)

else if (year is not divisible by 100) then (it is a leap year)
else if (year is not divisible by 400) then (it is a common year)
else (it is a leap year)

Looks like Jan 19 of 2019 is good to go!

In general, if this is your primary residence, the rule is 2 out of the last five years. So, you could purchase in 2015, rent it out 2015-2018 and then live in it in 2019 and 2020 and exclude gains up to the $250,000 or $500,000. The amount of gain that may be excluded is $250,000 single or $500,000 filing joint.
Or you could switch it around and live there the 1st 2 years and rent the next 3. Or live the middle 2 and rent out the other 3. So long as the year you sold the home it was your primary residence 2 of the past 5 years.

@Jamie Engledow

you are only partially correct. Yes, 2 out of 5 years, but it's only one of the rules.

If, like in your first example, you move out and then move back in, another rule kicks in - which will result in losing part of the exemption.

@Andrew Varney - this does not apply to you, you're good to go on the 20th. Also, depending on the circumstances of your move, you may be able to sell it earlier. If you had some real good reason, other than just moving to a cheaper location.

If I can piggyback on this post. Does the 2 years no capital gain wk with a 4 unit building if we live in one of the units? We are a married couple also

Originally posted by @John Woodrich :

@Michael Plaks many people miss the "unforeseen circumstances" part of this rule.  Works well for people who have something come up and they don't meet the 2 year rule.

Even then it only disallows a proportionate amount.

If you lived in it 1 year- meet an "unforeseen circumstance" test.

You now only get to disallow 50% of the capital gain.

Which Is better than 0 - but you won't get the full exemption.

Originally posted by @Natalie Kolodij :
Originally posted by @John Woodrich:

@Michael Plaks many people miss the "unforeseen circumstances" part of this rule.  Works well for people who have something come up and they don't meet the 2 year rule.

Even then it only disallows a proportionate amount.

If you lived in it 1 year- meet an "unforeseen circumstance" test.

You now only get to disallow 50% of the capital gain.

Which Is better than 0 - but you won't get the full exemption.

 Of Course.... Which also covers most people who own a house for under 2 years.....  

Originally posted by @Natalie Kolodij :
Originally posted by @John Woodrich:

@Michael Plaks many people miss the "unforeseen circumstances" part of this rule.  Works well for people who have something come up and they don't meet the 2 year rule.

Even then it only disallows a proportionate amount.

If you lived in it 1 year- meet an "unforeseen circumstance" test.

You now only get to disallow 50% of the capital gain.

Which Is better than 0 - but you won't get the full exemption.

That is not how it works, actually.

The partial exclusion limits the maximum, not the gain. So if you lived there for 1 year and meet the unforeseen circumstances test - then you can deduct up to $125k instead of up to $250k (double if married) - but it can still be 100% of your gain.

Originally posted by @Michael Plaks :
Originally posted by @Natalie Kolodij:
Originally posted by @John Woodrich:

@Michael Plaks many people miss the "unforeseen circumstances" part of this rule.  Works well for people who have something come up and they don't meet the 2 year rule.

Even then it only disallows a proportionate amount.

If you lived in it 1 year- meet an "unforeseen circumstance" test.

You now only get to disallow 50% of the capital gain.

Which Is better than 0 - but you won't get the full exemption.

That is not how it works, actually.

The partial exclusion limits the maximum, not the gain. So if you lived there for 1 year and meet the unforeseen circumstances test - then you can deduct up to $125k instead of up to $250k (double if married) - but it can still be 100% of your gain.

Micheal,

I have seen this misconception a lot. Glad you are here to save a day. 

Originally posted by @Richard Jimenez Jr :

If you rent your home below fair market value for 3 out of 5 years does that negate having to pay depreciation recapture & keeping 100% of section 121 exclusion gain when you sell?

More than one question lumped into one.

If you rent your home below the market value, it is considered personal, not business, use. You cannot claim any losses during this period. Usually, it's not to your benefit.

Depreciation is not optional. You must take it first and then return. You must return it even if you DIDN'T take it - which makes not taking it counterproductive.

And since it's a round trip: you take it and then you return it - you're not losing anything. There's no point trying to figure out a way around depreciation.