The current IRS regulations allow an exemption from any gain on the sale of your primary residence. In order to be considered your primary residence, you must have owned the home for at least 2 years and you must have lived in the home for at least 2 of the last 5 years. If you satisfy those two requirements, then you are eligible to deduct $250,000 (or $500,000 if married filing a joint return) from the gain on the sale of your primary residence.
Concerning the home that you now plan to convert to rental property, if during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can still exclude up to $250,000 of the gain ($500,000 on a joint return). However, you cannot exclude the portion of the gain equal to depreciation allowed when it was a rental property.
As far as the home you plan to move to in Pacific Grove, you would have to meet the same ownership and use tests as outlined above before it would be considered as your primary residence and qualify for any exclusion.
Hello again Customer,
If you are a US citizen, you are subject to the same taxation laws of any other US citizen, regardless of what country you currently reside in. As a result, you are liable for tax on any gain from the sale of your UK home that is in excess of any exclusion amount you are entitled to.
If you owe any tax as a result of a gain on the sale of your home, the tax would be due in the year the sale was made, not just when you bring the money into this country.
As far as the depreciation on your rental property, if you were entitled to take depreciation on the property, then you cannot exclude the amount of depreciation that was allowed or allowable from the gain.