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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have a house to sell that isnt selling.......Its been my

Customer Question

I have a house to sell that isn't selling.......It's been my primary residence for the past 8 years. I have now moved out of that house and purchased another primary residence..........Here's my question: I understand that there's a new law/rule coming October 1, 2008 that WON'T allow me to rent out my (non selling) home......and pay no Capital Gains, using the 2 out of the last 5 years rule!!!!! .............HELP! Both properties are in Portland Oregon......Many thanks, Lynn
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

I am not aware of any law changes this matter.

Please provide the source of information and I will examine it.

Customer: replied 5 years ago.

Hi Lev,

 

Heard that information on the "Clark Howard" radio show - yesterday...9/3/08.

Help! I'm worried......Stuck with 2 mortgages and was hoping I could rent the home I'd lived in as my primary for the last 8 years - out to a tenant for 1-2 years or more if needed...........I thought I had 5 years to rent out my home - as long as I'd lived in the home for 2 out of the last 5 years........Help!!!

 

Many thanks for checking that out.

 

LCumberla

Expert:  Lev replied 5 years ago.

I looked though latest "Clark Howard" radio show transcripts and see nothing that might mention "the new law" you pointed above - please verify on your own as I might miss as well...

http://clarkhoward.com/liveweb/shownotes/2008/09/

http://clarkhoward.com/liveweb/shownotes/2008/08/

 

So far as long as you will sell in less than three years after moving out - you will be within 2-out-of-5 rule and may exclude capital gain from taxable income.

If you indent to rent the property - the depreciation for the rental time should be recaptured and will be taxed as your original income.

 

Customer: replied 5 years ago.

ok, so, what is the 2 out of the last 5 rule............I've lived there for the last 8 years. I'll need to rent it because it's not selling. SOOOO, tenants are in there for the next 2 years.......do I have an additional 3 years (making of total of 5years)

 

When does the clock start? The day I moved out of the house?

 

Thanks,

 

Lcumberla

Expert:  Lev replied 5 years ago.

Please refer to the IRS publication 523 - http://www.irs.gov/pub/irs-pdf/p523.pdf - page 10.

To use exemption - you need to satisfy two separate tests:

  • ownership test - own the property for at least two years out of last five before the sale
  • use text - Use the property as a primary residence for at least two years out of last five before the sale

You would not have any problem with ownership test.

To satisfy use test - you need to complete the sale within three years after you moved out - regardless if the property was rented or not.

 

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22708
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Expert:  Merlo replied 5 years ago.

HelloCustomer

 

There is a new law that goes into effect on January 1st, 2009 which will affect the amount of gain that you can exclude on the sale of your primary residence.

 

Currently when homeowners sell their main home, they can exclude up to $250,000 from the gain, or $500,000 if married filing a joint return. The only requirement is that they must have owned the home for at least 2 years and they must have lived in the home for at least 2 of the past 5 years. The Housing Assistance Tax Act of 2008 changes those rules. The amount of profits from the sale of a house that can be excluded will now be based on the percentage of time when the house was actually used as a primary residence.

 

Homeowners who sell their primary residence can still exclude up to $250,000 (or up to 500,000 for married couples filing jointly) in capital gains from their taxes, but the amount of gain that will qualify for the exclusion is limited based on the amount of time that the house is actually used as a primary residence.

 

If the house is used other than as a primary residence, capital gains must be allocated between qualifying and non-qualifying use. Any non-qualifying use can potentially reduce the amount of capital gain that can be excluded.

 

Under the new rules which go into effect on 01/01/2009, you will still need to meet the requirements of having owned the home for at least two years and having lived in the home for at least 2 of the past 5 years - that part does not change. However, if you have not lived in the home the entire time that you owned it, then you will only be allowed to claim a prorated portion of the exclusion amount based on the percentage of time you actually lived in the home.

 

As an example, if you owned a home for 2 years and lived in it for the entire 2 years, you can take the entire amount of the exclusion. However, let's say that you owned the home for 5 years, and lived in the home for 2 years as your primary residence, and then rented out the home for the other 3 years, then you would only be allowed to claim 40% of the exclusion amount - based on the fact that you lived in the home for only 40% of your total ownership period. So the amount you could exclude from your gain would be $100,000 for single taxpayers and $200,000 for those who are married filing a joint return.

 

I am giving you a link below to an article which explains the new rules in "plain English" so to speak. The IRS code on this is pretty complex, and I do not believe that the IRS has yet put out a Publication which explains these new rules, but the article below should help.

 

If this has been helpful, please press the Accept button. Positive feedback is also appreciated.

 

Thank you.

 

http://taxes.about.com/od/capitalgains/qt/home_sale_tax2.htm

 

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