All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 2
Registered: ‎03-28-2017

Selling a rental property without paying excessive capital gains

I have owned a home in WA since January 2011. I got stationed overseas in July 2014 and put it up for rent. I am currently trying to sell the property. I was told of a loophole that if you lived in the house for 2 of the last 5 years you don't have to pay capital gains. Is this true and since the property was not rented out for a full 3 years does the home need to be sold by July to fall into this category. I purchased the home for 170,000 as a forclosure and am looking to sell it for 285,000 if that helps to get me the best answer. 

Tax Pro
Posts: 5,715
Registered: ‎02-23-2016

Re: Selling a rental property without paying excessive capital gains

Hi Jonhampton,

 

Welcome to the H&R Block community.

 

Your information about the "loophole" is partially accurate.  When your primary residence becomes a rental you can claim the exclusion of gain from income if you lived in it for at least two out of the last five years, however you must recapture all allowable depreciation on the house when you sell it.  Therefore you have to report the sale on Form 4797, and the maximum allowable exclusion will be reduced by the amount of recaptured depreciation, which is taxable.  So if you have $20,000 worth of depreciation and $100,000 worth of gain, you'll still be able to claim an exclusion of $80,000 worth of the gain but you'll pay capital gains tax on the $20,000 amount.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 2
Registered: ‎03-28-2017

Re: Selling a rental property without paying excessive capital gains

[ Edited ]

Will I have to sell the house by July or does it matter as long as it's not rented out for over 3 of the last 5. If I need to could I have my wife move back into it while I finish out my time overseas until the house sells and still fall into the loophole 

Pioneer
Posts: 1
Registered: ‎05-09-2017

Re: Selling a rental property without paying excessive capital gains

I am in almost the same position, except I never lived it in the home. We have a house in FL that we have been renting out since 5/25/2006. How do I find out what my tax liability would be if we sold this season?