sale of primary residence which used to be a rental home

Oct 08, 2012 3 Replies
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We purchased a home in California in 1995 for $250k mainly for a rental income. I have rented it out since 1995. Now the house is vacant. We are thinking of moving into this rental home and converting it to our primary residence. Then sell it after two years. We will be spending 75k for remodeling. It may sell for



800k after two years. Do we get the full 500k of capital gain exemption? I understand that we will have to recapture the depreciation. A friend told me that I can only get a pro-rated exemption. If I owned the house for 20 years and I only lived in it for 2 years than I can only get tenth of the exemption (50k). I am all confused. I always thought that all I have to do it make it a primary residence for two years to get the 500k exemption.
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A

More complicated than that.

See the worksheet on page 37 of

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The period of non-qualified use after 12/31/08 creates the need to pro rate the exclusion amount, using Worksheet 2 of the referenced Pub.

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N

Thanks for your help.

On Page 37, there is a Worksheet 2 and on Page 38, there is a Worksheet 3. Friend of mine told me that I need to use Worksheet 3 and not 2. What do you think?

thanks

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P

Worksheet 3. Friend of mine told me that I need to use Worksheet 3 and not 2.

Your friend is wrong. Your situation (depreciation and nonqualifed use after

2008) is covered in Worksheet 2. See lines 6-10 of the worksheet.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

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