My question is..I am thinking about selling a house and want to know if I have to pay capital gains tax. I used to live in the house, then starting renting it out. From what I know, if you lived in the house 2 of the past 5 years (which I have), you can avoid the tax. But...since I have been using it as a rental house the past 2 years, is that going to require me to pay a capital gains tax if I sell?
2007-08-29 09:37:07 · 5 answers · asked by TB28 2 in Business & Finance ➔ Taxes ➔ United States
Rules are if you've lived in the house for 2 out of the past 5 years, you can exempt capital gain up to $250,000 if single and $500,000 if married. If you started renting the house out, but didn't take any depreciation on it for renting it out, I would say that you would still be able to take advantage of the 2 out of 5 rule. If you took depreciation then you would have capital gains on the amount of depreciation that you took.
2007-08-29 09:53:50 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Having it as a rental will affect what you can exclude, even if you meet the ownership and use tests - you can't exclude from the gain any amount that you claimed or could have claimed as depreciation. So you'll probably have to pay some tax, but maybe not on the whole gain.
See IRS Publication 17, page 103 (download at irs.gov) for more info and an example.
2007-08-29 16:45:23 · answer #2 · answered by Judy 7 · 1⤊ 0⤋
You are correct that if you have lived in the house 2 of the past 5 years you will NOT have to pay capital gains tax. You will also not have to repay and depreciation that you have claimed on your tax returns if your gain is under $250K for single and $500K if you are married.
If you search for capital gains on the irs.gov site you will be able to find the whitepapers that explains this.
2007-08-29 16:45:09 · answer #3 · answered by Tim 2 · 0⤊ 1⤋
You are correct on the 2 out of 5 years to "avoid" capital gains. But I don't believe that you are going to avoid it totally, the way that I intrepet the law is that you will be exempt from the first $125K in gain if single, and $250K if married (but I can't find those figures in the IRS website, so not sure if those are correct anymore).
http://www.irs.gov/pub/irs-pdf/p544.pdf
http://www.irs.gov/publications/p523/ar02.html#d0e696
Here are a couple of publications from the IRS on capital gains/sale of house.
2007-08-29 16:53:07 · answer #4 · answered by KD 2 · 0⤊ 1⤋
I believe the tax exemption is only for your personal residence. You will have to pay tax on the gain. (be sure to subtract all improvements that you have made from the selling price before figuring your gain.
2007-08-29 16:41:48 · answer #5 · answered by united9198 7 · 0⤊ 0⤋