[quote=joec]Thanks for all the explanations. I was familiar with the depreciation recapture and all that, but from these scenarios, I don’t think it’ll be that bad since a lot of the tax situations could be controlled. If you are ultra wealthy, you can pass it on tax free, for less so, can’t you also just move into said property for 2 years and sell for the 500k tax free benefit as well?
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Short answer. No…

Longer answer..

1) The move back in for 2 years and sell for $500k “tax free (joint)” is on capital gains only…. it wouldn’t be on the depreciation recapture portion…
So for example, if you bought a home for $300k, sold it for $500k and had $50k in depreciation while it was a rental, that $50k depreciation recapture would still be taxed….

That $200k capital gains is the portion that would be exempt from capital gains in full or in part..But keep in mind also that……

2) Even the rules of the $250k/$500k capital gains “tax free” has changed…. It’s not as simple as living there two years as your primary residence anymore and getting the entire $250k/$500k capital gains tax free (like it was under the old law)….. Specifically,

“A special rule enacted in 2009 limits the $250,000/$500,000 exclusion for homeowners who initially use their home for purposes other than their principal residence, such as a rental or vacation home. The rule requires you to reduce pro rata the amount of profit you exclude from your income based on the number of years after 2008 you used the home as a rental, vacation home, or other “nonqualifying use.” ”

Probably, from a “fairness” point of view, yes this is more of a fair rule…From a practical point of view…just as I stated early, one less tax benefit that older people were able to take advantage when they could versus younger people who haven’t taken advantage of this..

Don’t get my wrong, I’m not complaining (no, really… ok, maybe a little bit..) I’m just telling it how it is (I think)…Clocking is ticking my friends. Those older tax benefits sure seem to be closing fast…