Capital Gains on Second Home

6 Replies

My wife and I bought a new house with my father (so we could all live together; my father is elderly) in October 2016. We kept our old house, which I have owned since July 2000, and spent about a year doing renovations on it before we began renting it to a tenant in January 2018. We are having some tough financial times now and are considering selling our rental property, but I'm not clear on when the capital gains would apply on the sale of the rental property. Thanks in advance.

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You need to have owned and occupied the home for 24 months of the last 5 years. 

If in October of 2016 you bought a new house and moved into it the prior previous resident exclusion expires literally this month (Based on date you moved out from the first house) 

You may be a little out of luck on this one. 

That house will be taxed at LT capital gains with the portion that relates to depreciation at a recapture rate that may be a little higher up to 25%

Originally posted by @William Carroll:

Thanks Jayden. The question is, I lived there on and off while doing renovations in 2017. Does that count?

You can't have two primary homes 

If your mail was going to the other house, your loan on the other was is a occupancy loan, ect....then that's your primary. Which home did you spend MORE time in during 2017? 

It is a COMBINED 24 months out of 5 years- so if you actually qualify for some time in 17 as primary home then you can potentially qualify. But it's also both husband and wife owner/occupy to qualify for the $500k exclusion. 

I would talk with your CPA because you're on a fine line here. 

Thank you Natalie. I think you understand my uncertainty. I understand I can't have two primary homes, but since my wife and I did spend did spend about 10-15 percent of our time in the old house (the one we are considering selling) and we didn't rent it until January 2018, does that come into consideration at all? Or is the cutoff date just determined when we closed on our new house? 

Originally posted by @William Carroll:

Thank you Natalie. I think you understand my uncertainty. I understand I can't have two primary homes, but since my wife and I did spend did spend about 10-15 percent of our time in the old house (the one we are considering selling) and we didn't rent it until January 2018, does that come into consideration at all? Or is the cutoff date just determined when we closed on our new house? 

 Not when you closed it. When did you actually moved in and converted your primary residence to the new house by changing addresses on your banks, work, and all the mails?  It is very subjective. Make your case, take your exclusion, and defend it if you get audited.