Hello! this link was very helpful thank you so much for taking the time to post it. My question is regarding the Capital Gain Exemption...
What if I bought a Property: January 1, 2015 for $500,000
Rented it out until, January 1, 2016 and now value is $625,000
Then I Moved in and lived there for a year until January 1, 2017 and value now is $700,000
and then I sell The Property for $700,000.
Would I have exemption on the entire $200,000 of Gains or would I need to declare the first $125,000... Pay the Capital Gains Tax on that before I moved in And THEN Be exempt from the Remaining $75,000?
You would be exempt for the $75,000, as that was the gains earned under primary residence.
In theory you're supposed to have an appraisal done on the property when you move in, or move out of a primary residence. That way it can be calculated what gains were made while it was a primary residence and what gains were made as an investment.
@Roman Kendzerskyy , It's a proration of all the gain between the number of years it was rented and the number of years you lived in it. And don't forget you'll also have depreciation recapture for the year it was rented.
@Jason Ridout No, a value only matters in some cases when you convert a primary to a rental for depreciation calculation purposes only (if the value is lower than original basis). It has no bearing when prorating for a 121
In the case you presented, you get No section 121 exemption....it was not your primary residence for at least 2 years.
If you did live there for 2 years instead of one...It doesn’t matter what the value was whenever....cap gains exclusion would be a straight prostration of the time it was a rental verses the time it was your primary....since it was a rental first. In that case, 2 years out of 3 as your primary, 2/3 of the gain would have been exempt.
Great catch @Wayne Brooks , I thought they moved in and stayed from 17 - till present. If they only live there one year - no primary residence exemption.