[quote=bearishgurl]
Of course, the OP would have to tell us, but I think his situation meets the exception described above. From my memory of his prior posts, I don’t think his rental house has been in service very long (1-2 years??). Before renting it out, it was his principal residence.
If I’m reading this paragraph right, the OP won’t have to pay capital gains on any portion of proceeds he nets from sale because his rental house hasn’t been in service long enough.
Is this your understanding of this exception?
paramount, how long has it been since you moved into your new primary residence and how long have tenants occupied your old house (if the answer to the 2nd question makes a difference)?
FSD, if paramount is coming up upon, say, 3 years since he turned his old house into a rental, what should he do here if he wanted to sell at least one house and avoid capital gains tax?[/quote]
My understanding is that if used as a primary residence first, before converting to a rental, the exclusion applies.. BUT they would still owe taxes on depreciation recapture. They would be taxed on the part of the gain equal to the amount of depreciation they took (or were supposed to take) while it was a rental property. Depreciation recapture tax can be up to 25 %.
Bottom line … if it was used as a rental any time after 2009 you’ll taxes of some sort on some portion of some gains.
Also, note that these rules have changed at least a couple times over the last decade.
