Have a Finance Question? Ask a Financial Expert Online.
You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home,As a military person - you can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.
Here is an illustration - Example. David bought and moved into a home in 2006. He lived in it as his main home for 2 1/2 years. For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2014. To meet the use test, David choo-ses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. This means he can disregard those 6 years. Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2 1/2 years during this test period.Period of suspension. The period of suspension cannot last more than 10 years. You cannot suspend the 5-year period for more than one property at a time.
If you qualify for that provision - you will exclude the gain from sale - and on that form in Part II - check box 1 - Property is qualified under section 121 as a principal residence.
That is correct - but because you moved on the military order - the 5 year period suspended.Then - because you did not live there for two years - You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station.So - the maximum exclusion woudl be not $500k - but only $250k as you lived there one year - not two. So - we need to deal with the amount of your gain.Another issue - as you mentioned - the property was rented - correct?In this case - the amount of depreciation recapture (allowed or allowable) may not be excluded under section 121 - and will be added to taxable income - and you do NOT qualify for the full exclusion - and may NOT select any of these boxes.But must provide computation for estimated gain or loss.