For Capital Gains on a Primary Residence, how do you interpret 2 of the last 5 years?

Question

I believe that means that if it's now 2007 and I lived in the property in 2002 and 2003, but kept it rented afer 2003 , that it fills the requirement. I could have captail gains waived if I sold in 2007.

Answer 1

If you lived in the property for ALL of 2002 and 2003, but not after that, then you'd have to sell by January 1, 2007 to qualify, since the specified time is two out of the five years prior to the date of sale, and 5 years prior to 1/1/07 is 1/1/02, the start of your two year period of residence. So you're running out of time in about 6 weeks. If you only lived there part of 2002 and/or 2003 but not after that, then you don't have the full two years residence so don't qualify.

As someone else said, the fact that you had converted it to rental property after that does complicate matters, and you couldn't exclude all of the gain if there is depreciation that you claimed or could have claimed.

Answer 2

That does qualify as 2 of the last five years. Renting the property does complicate the issue. The link below is an IRS FAQ that includes your question almost exactly. I would suggest asking a CPA or tax professional. It looks to me like you will have to claim part of the gain as business income.

Answer 3

Exactly like it sounds. You are right in your figuring but watch those dates real close because it may not sell until 2008. Also it is by DATE and year. Ex: mar1 2002 to mar1 2007