I have a new client who will be posing me a tricky house sale situation to deal with, and I was hoping for advice and gotcha's to watch for. Here's the scoop: House #1 in State #1: Purchased Sept 98; lived in until Sept 01. Moved to State #2 at that point for personal reasons, started renting out House #1. Purchased House #2 in State #2 at some point (I don't have that date yet). Rented out House #1, reported Sch. E income, took depreciation, etc. in 01 (for the last couple of months),
02, 03, 04 (for the first couple of months). Sold house in Sept 04. _Just_ squeaked in under the wire for "primary residence 2 of last 5 years" to exclude gain (except for depreciation recapture); literally by days. Total excluded gain was about $55K. In Jan 04, moved to State #3 to go back to college. Still has House #2 in State #2 (empty, listed for sale, hasn't sold yet). Rents livning space in State #3. Lived in House #2 from purchase (in 01?) through Dec 03. Could therefore still claim primary residence for 2 of last 5 years. What do I need to watch out for, and what should I warn my client to watch out for in this? How should I handle this next year-- assuming this second house sells in 05? Any advice from all you folks would be appreciated.
Thanks!
Catherine
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