Have a Tax Question? Ask a Tax Expert
The sale is a taxable event so if you have a gain you will be taxed. As this was your previous home you may be allowed to prorate the exclusion under IRC 121. That is when you are allowed to exclude gain up to $250000 if single and up to $500,000 if married.
When a homeowner sells or exchanges a principal residence, the homeowner is only required to report the sale when his capital gain is more than $250,000. This benefit, often referred to as the section 121 exclusion, can be used for a home sale every two years, as long the owner used the home as his principal residence for at least two years in the five-year period preceding the sale. Military homeowners receive an added benefit under section 121 because they can suspend this two year “use test” for up to ten years while serving on active duty.
Thus, a servicemember using the home as his primary residence for two years during a five-year period can suspend disposition for up to ten years and still use the section 121 exception to exclude his capital gain from taxation.
The time you rented would count as ownership time but you still need to have used the home for 2 years as your main home (covered under special rule for military). The rental time is disqualified use. The gain on a residence must be divided ratably between the nonqualified use period and the qualified use period during the 5 years before the sale. Only that portion attributable to the qualified use period can be excluded from income.
The depreciation you used or could have used is under recapture rules and you cannot exclude that amount. It is taxed to you in year of sale if you have a gain.
Possibly, if the use was in that percentage range.
Please remember that you are required to rate in a positive way (look for the STARS or SMILEY FACES) so I am credited with responding.