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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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We purchased an out of state rental home in 1998 and have had

Resolved Question:

We purchased an out of state rental home in 1998 and have had it rented until Sept. of 09. Since then we have used it as a second home but have not taken the steps to become residents of California. Given the new law of 2009 on capital gains, is it true that the sooner we become residents of California for two years the better with regards XXXXX XXXXX gains tax? What are the penality percentages each year after 2009?
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

There is no capital gain unless the property is sold.

Only if you sell the property - and the selling price would be more than your adjusted basis - you will have a capital gain.


The capital gain on the rental property and on the second home should be included into your taxable income.

In additional because the property was rental - you might need to recapture the depreciation for the time the property was rented - and it will be taxable at your regular tax rate.

Because you owned the property more than a year - a long term capital gain rate will apply - that is not more than 15% for 2010 and set to increase to 20% starting 2011.

California taxes are extra.


You may exclude the capital gain (up to $250,000 for singles, $500,000 for married couples) only if you use the property as your primary residence at least two years out of last five before the sale.

However the exclusion might be reduced in case of non qualified use withing the last five years. Renting is considered non qualified use.


You will find more information in IRS publication 523 - however it is not updated for 2009 yet - please verify in a few days -


Let me know if you need any help.


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