Primary residence tax /rental question. Florida and Texas.

1 Reply

I purchased my first primary residence in Florida in November of 2015 for $79,000. I then had to move due to military restationed me to Texas on May 2017. I have had my house for sale for almost 6months, got under contract twice and literally went up to the day before closing and the deal got called off (long story). Was to be sold for $139k and $135k on both separate deals. So potentially a $50k ish profit after closing cost and such.

I understand that although I didn’t stay for 2yrs that since I moved more than 50miles away due to work that I can still qualify for the tax exemption when selling my home and getting the full profit.

My question is, since I wasn’t able to sell it during this summer, can I turn it into a rental property for a year and then put it for sale next summer without sacrificing the primary resident tax advantage ? Because I want to buy another home here in Texas to live in and I understand that you can only have one primary residence. I just don’t know if it will sacrifice the benefits I had in the first home if I put it as a rental before I sell it next year ?

Any advice will help much. Thanks

@Simon Martinez , I believe you are describing the Section 121 exclusion, which allows for an exclusion of up to $250,000 of capital gains on a taxpayer's primary residence ($500,000 for married couples filing jointly). To qualify for the full exclusion you must live in the house for 2 of the past 5 years (plus a bunch of other caveats that normally don't apply).  If you lived in the house less than 2 years, but moved away for a qualified reason you can claim a pro-rated exclusion amount.

You can rent the property after you have lived in it and then later sell it and still qualify for the section 121 exclusion  - as long as you meet the lived in for 2 of the past 5 rule (or your pro-rated amount of time). 

However, since the military caused your move, you are eligible for a 10-year extension to the 2-in-5 rule. So, essentially, you could rent that property until November 2030 and still qualify for the section 121 exclusion.

Thank you for your service, and Best of Luck with Your Real Estate Investing!

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