Primary Home convert to Investment property Capital gain tax

4 Replies

I own my primary home for 3yrs and will plan to buy new primary home and keep this current home as rental.

My plan is buy new primary home and keep this current home as rental.- In this case, when I sell my current home (will be rental in the future) how is calculated the capital gain tax? Currently the price gone up about (capital gain as of now, $200,000) and it is still below $500,000. Let's say, I convert the home to rental Feb 2022 then sell home 2027 (total capital gain is 500,000 for example when I sell 2027). When I sell 2027, Should I pay capital gain tax for entire 500,000 or pay partial capital gain tax (500,000 - 200,000= 300,000) for only when the home is being used rental (2022 Feb - 2027) 

Originally posted by @Kevin Kim :

I own my primary home for 3yrs and will plan to buy new primary home and keep this current home as rental.

My plan is buy new primary home and keep this current home as rental.- In this case, when I sell my current home (will be rental in the future) how is calculated the capital gain tax? Currently the price gone up about (capital gain as of now, $200,000) and it is still below $500,000. Let's say, I convert the home to rental Feb 2022 then sell home 2027 (total capital gain is 500,000 for example when I sell 2027). When I sell 2027, Should I pay capital gain tax for entire 500,000 or pay partial capital gain tax (500,000 - 200,000= 300,000) for only when the home is being used rental (2022 Feb - 2027) 

Your primary residence will qualify for $250k ($500k if Married) gain exclusion if all following requirements are met:

  • You owned a home and used it as your main home during at least 2 of the last 5 years before the date of the sale.
  • You did not claim any exclusion during the last 2 years.
  • You did not acquire the house with a Like-Kind exchange during the last five years.

The rental period after you move out of your PR is not considered non-qualified use. So even if you rent for 3 years but sell before 5 years mark, you can avoid the taxes. 

Thanks Ashish for your quick answer. To clarify, 

  • You owned a home and used it as your main home during at least 2 of the last 5 years before the date of the sale.- Let's say, I will hold long (let's say I will hold 10 years. Then, 2018 - 2022 Feb (3YRS), It was owner occupied. Then another 7yrs, between 2022 - 2029, it will be rental. In this case, it was not primary home last 2 yrs when I sell 2029. Can you advice if I still get tax benefit at least some portion for when It was owner occupied between 2018 - 2022 Feb?
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Originally posted by @Kevin Kim :

Thanks Ashish for your quick answer. To clarify, 

  • You owned a home and used it as your main home during at least 2 of the last 5 years before the date of the sale.- Let's say, I will hold long (let's say I will hold 10 years. Then, 2018 - 2022 Feb (3YRS), It was owner occupied. Then another 7yrs, between 2022 - 2029, it will be rental. In this case, it was not primary home last 2 yrs when I sell 2029. Can you advice if I still get tax benefit at least some portion for when It was owner occupied between 2018 - 2022 Feb?

 If you do not sell it within 3 years after your 24 months of occupancy you lose any tax benefit. 

In the situation again the whole sale would be subject to long term capital gains.