Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.
12-14-2017 10:14 AM
To start, I've been in the Navy for 19 years. My wife and I purchased a home in 2008 and lived in it until 2012. We've since transferred numerous times, remaining on active duty and had been renting it until we sold it in May 2017. Just wanted to verify that we qualify for the Military Active Duty Capital Gains Exclusion?
12-14-2017 03:00 PM
Welcome to the H&R Block community.
Yes, you qualify.
Basically it's the same as any other person's capital gain exclusion on the sale of a home, except that because of your having to move around due to active duty you get an extension of five years. So the rule for you is that you must have lived in and owned the home for at least two out of the last ten years in order to exclude your gain. The exclusion is the first $500,000 worth of gain for married taxpayers filing jointly.
You can only do this with one home at a time, so you won't be able to do it for a second home until after you report the sale of this one. The next time you will be able to exclude gain after this time will be on your 2020 tax return.
However, you will not be able to exclude it all. Because you turned the property into a rental you must recapture all allowable depreciation in order to exclude gain. So if your allowable depreciation was $20,000 and your gain on the sale was $90,000, you would be able to exclude $70,000 from taxation. The other $20,000 would be subject to the recapture tax.
Here is some additional information on this topic:
"The rules allow you to “suspend” the years while you are away from your primary residence while on Qualified Official Extended Duty. Qualified Extended Duty includes a PCS move of at least 50 miles from your current primary residence or if you are assigned to Government Quarters under Government Orders (i.e. you are required to move into base housing due based on your job or some other military requirement).
The suspension can’t be for more than 10 years and you can only do it for one home at a time…you can’t have two primary residences. To simplify all the above, if you lived in your home for at least 2 of the last 10 years and you left your home because of military orders (PCS or into Government Housing) you qualify for the exemption of the Capital Gains on the sale of you primary residence."
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)