Military member with a rental property

[Adam Betley]

I am a military member who owns a home in Texas. I lived in that home as my primary residence from September 2005-August 2009. At that time I received orders outside of a 50 mile radius (Japan to be exact) and moved. At the time of the move I decided to keep the home and turn it into a rental property. I am looking to sell this home this spring of 2014. My question is this:

1) Being that I am an active duty military member, I believe that I qualify for the 5 year test period suspended (reference IRS Publication 3, page 12) and fall in to the 10 year suspension period. However, since I have rented out my property from September 2009-present, do I really fall under this clause or am I different because I used this property as a rental for that period of time?

Please let me know if you need additional information on this question in order to answer in a more clear manner. Thanks for your time.

Adam

[Kenneth Hynes]

@Adam Betley

From the IRS website. this was part of the Military Family Tax relief Act of 2003 .

Taxpayers may exclude gain on a home sale, provided they have owned and used the home as a principal residence for two of the five years before the sale. A reduced maximum exclusion may apply to those who satisfy part of the two-year rule. Military personnel often retain ownership of a home while away on duty but eventually sell it without returning to live in it, perhaps failing the use test completely.

The new law allows persons on qualified extended duty in the U.S. Armed Services or the Foreign Service to suspend this five-year test period for up to 10 years of such duty time. A taxpayer is on qualified extended duty when at a duty station that is at least 50 miles from the residence sold, or when residing under orders in government housing, for more than 90 days or for an indefinite period.

This change applies to home sales after May 6, 1997. A taxpayer may use this provision for only one property at a time and may exclude gain on only one home sale in any two-year period. Although an amended return must usually be filed within three years of the original return’s due date, the law gives qualifying taxpayers who sold a home before 2001 until Nov. 10, 2004, to file an amended return claiming the exclusion.

It also states several examples for homeowners and what kind of exclusion they can get. They do not specify whether or not the property is used as a rental while the military member is stationed more than 50 miles away .

Queston is , have you remained in Japan since August 2009, and if not , did you return to within 50 miles of the house ?