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We own a house but renting an apartment close to my work to…

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We own a house but...
We own a house but renting an apartment close to my work to save some commuting time. We rented out our house for the last 2.5 years. Tenants moved out last Dec, we decide to sell the house. Now the house is vacant.
Do we have to move back to physically live in the house in order to not pay for any taxes after sale? Does it make any difference to leave it vacant? Does IRS consider apartment is our main residence or the house is our main residence? It's better to deduct my house expenses as a rental property or as other income?
Appreciate your help.
Submitted: 2 years ago.Category: Tax
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2/15/2016
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,201
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Hi, I can help here!

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OK the test is simply having lived for 2 out of the 5 years (ANY 24 months actually, out of the last five years) prior to sale.

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BUT then there's a modification for any of those five years being used as anything other THAN primary residence (such as rental).

...

Hang on and I'll get the formula for you

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

The allocation of the gain between qualified and non-qualified use periods is actually very simple. Gain is allocated using a formula or fraction based on the number of years the property was held for qualified use versus the number of years the property was held for non-qualified use as a percentage of the total number of years the property was owned by the homeowner.

...

here's an example

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

the portion of your gain that CANNOT be excluded is
...
non-qualifying use / period of ownership.

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SO, lets say that you owned the home for 10 years, rented for 2.

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You gain on sale was 400,000 (under 500,000 so normally NONE of the gain would be reportable).

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here, you would still have to report 2/10 of that 400,000 gain

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.2 x 400,000 = 80000

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Lane, JD, CFP, MBA, CRPS
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