Capital gains tax question for sale of house

[CobraGoat]

I believe there is no capital gains tax on the sale of a residence you have resided in for at least two years.

However, if you live in the house for at least two years and then move and rent the former property does the gains tax come back? To avoid, would I have to move back into the house for two years after renting?

If so, any options for avoiding this scenario aside from the obvious?

[TLC]

It must have served as your primary residence for 2 of the previous 5 years. It does not need to be the last 2 years. The exemption is $250K for single/$500K for joint.

[CobraGoat]

So if i live there for two years rent it for four, im screwed unless i resume living there for another two years?

The 250/500K exemption i assume means sales above those amounts are taxed on everything above?

[TLC]

Correct...if you rent it for 4 after living in it for 2, you would need to live in it for another 2 years. Of course, if you just rent it for 3 after living in it for 2, then it would qualify.

No, the exemption is on captital gains...so, that's 250/500k of "profit" (meaning sales price minus adjusted cost basis) which is exempt from taxation.

[snowbank]

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It must have served as your primary residence for 2 of the previous 5 years. It does not need to be the last 2 years. The exemption is $250K for single/$500K for joint.

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[chalk7]

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It must have served as your primary residence for 2 of the previous 5 years. It does not need to be the last 2 years. The exemption is $250K for single/$500K for joint.

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isn't this only the case when you are using that money to purchase another home?

[polkaface]

Chalk7 -

I think you are thinking of 1031 (like-kind) exchanges which refers to investment properties. Below is from a website regarding capital gains from homes. However if the property does not meet this criteria and it is considered an investment property then you can defer all capital gains if you use a 1031 exchange, which as Chalk said, you must buy a new property within 180 days and usually your funds must be kept by an intermediary and not in your control during those 180 days. Again, below is regarding the 250k/500k exemption.


Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria

You have lived in the home as your principal residence for two out of the last five years.

You have not sold or exchanged another home during the two years preceding the sale.

Also note that as of 2003, you may also qualify for this exemption if you meet what the IRS calls "unforeseen circumstances" such as job loss, divorce, or family medical emergency. Be sure to review IRS Publication 523 - Selling Your Home, for more information.