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insearchoftheanswer, Lawyer
Category: Landlord-Tenant
Satisfied Customers: 55313
Experience:  Lawyer; developer/owner of RE developments.
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This is a new situation. I am renting a property in the California

Customer Question

This is a new situation. I am renting a property in the California wine country. I have been here for two years. Based on our past conversation you advised me that without a lease I could not force them to allow us to stay for the agreed time. New situation. Within the past 5 years they did live on the property for 2 of those 5. Their tax people are saying that they have to sell the property within a three year period withing the five to avoid capital gains. The end of 2015 wil be the end of the third year which would be us renting three years and them living in it for 2. Why is there a time limit for them to sell the property within the 3 years to avoid capital gains?
Submitted: 2 years ago.
Category: Landlord-Tenant
Expert:  insearchoftheanswer replied 2 years ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.
The time period is because of Section 121 of the Internal Revenue Code. This section allows a seller to exclude up to $250,000 of the gain from a sale of a principal residence ($500,000 if married). But, to qualify as a principal residence, the seller must have used it as a principal residence for at least 2 years of the 5 years preceding the sale. So, once you've rented for more than 3 years, they would not be able to qualify for this exclusion.
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