a) Count the number of days of non-personal use after Jan 1, 2009.
b) Divide the number from a. by the total number of days you owned the home.
That’s the percentage of the gain that is taxable.
So, assuming you rent it out for 6 months in 2009, you will be taxed on 10% of the gain. Long-term capital gains tax is 15%. So, you will pay 1.5% of the gain. Not a big deal. Just make sure to sell before you exceed the 2 of 5 years primary residence test. Otherwise at that point it is 100% taxable.
Not sure what the state tax ramifications will be.
