Capital Gains Military Exclusion?

Question

We bought a house in 1996 lived there for three years, refinanced in 1999 and rented it out. Moved due to military orders. We are now considering selling, before the end of 2007 hopefully. Do we meet the military exclusion for Capital Gains, and who should we see to figure all this out?

Answer 1

Active duty military are allowed to "pause" the 2 of 5 year clock for up to 10 years if the move is due to military orders. If you are still on extended active duty it appears that you are within the window to still claim the exclusion.

There is one important caveat, though. Since you rented the property out, the depreciation allowed or allowable while you rented it out is NOT eligible for the exclusion so you'll have to recapture that as a taxable capital gain. You can exclude the remainder of the gain from tax, up to your exclusion amount.

For example, if you paid $200k for the property and the land value was apportioned as $20k, you would depreciate house's value of $180k. That would work out to $6,545 per year using the required 27.5 year useful life. If you rented it out for 8 full years your depreciation allowed or allowable would total about $52,360. Now let's say that you sold it for $400k. Your basis for calculating the gain on the sale would be $200k minus the depreciation allowed or allowable or $147,640. Subtract that from the net sales proceeds and you get a gain of $252,360. Although that is within the $500k exclusion for a married couple, you must show a taxable gain of $52,360 for the depreciation allowed or allowable in prior years while you rented it out. You would therefore have a tax-free gain of $200k and would pay long term capital gains tax on $52,360. That's levied at 15% for most taxpayers so the tax would be $7,845. Basically you already got a tax break on the depreciation when you expensed it while you rented the property out so you don't get a double benefit from it. This isn't unique to the military, everyone who rents out a home that was previously a principal residence has to deal with it.

Answer 2

definite there are particular regulations for different than for earnings if a flow is for a role flow, which contain of path a protection stress flow. you are not getting the completed exclusion of $250K, $500K on a joint return, yet prorate the allowable exclusion for the months you owned and lived interior the homestead divided via 24. this could desire to better than disguise your earnings. in spite of the shown fact that it won't be a earnings besides - you upload the fee of advancements to the acquisition fee to get your foundation, the quantity you subtract from the sale fee to calculate your earnings. putting the money into yet another homestead could could desire to electrify on your taxes - that rule went out some years in the past.