Sec 121

[RLymanC]

Can't find the new law.
Couple have had a rental for the past 10 years.

They want ot move in for the required 2 years and sell.

How much exclusion is there?

I found it,,,,Correct me if I'm wrong.

Beginning in 2009 if you rent it out till 12/31/2010
and live in it as your primary residence for 2 years you pay capital gains tax on 50% of the gain.

[dsi]

Where did you find your answer?

[Zee]

[QUOTE=RLymanC;89394]Can't find the new law.
Couple have had a rental for the past 10 years.

I don't think (that means there are others much smarter than me here) that's correct, and will add a link to an article that might help.

It appears that starting with 2009, the years of rental are "non-qualified" years for Section 121 purposes. As you'll note from the attached article, the amount of gain that becomes taxable is a ratio of the period of "non-qualified" use divided by the total period of ownership. In this case, let's assume it's 13 years with two of those being "non-qualified" years. Both 2009 and 2010 are "non-qualifying years. So, let's assume they occupy the residence as a personal residence on 01/01/2011 and sell on 2013. How much is taxable as gain?

If the total ownership period is 13 years (10 years + 3), the ratio is 2/13 or 15%. They will qualify for Section 121 exclusion since they've met the 2-year test. However, any gain due to depreciation plus 15% of any remaining gain is taxable and not excluded as Section 121 gain.

Here's a link to the article I mentioned, I hope this helps. You should note there are other exceptions, including the handling of those properties acquired in a 1031 exchange. But, please double-check my reply (I could be wrong).

http://www.tscpa.com/journal/article..._the_newly.pdf

[RLymanC]

Sec. 121

Thanks, I'll look into my thinking.

The link won't connect. Went to their site but no luck on your article.

[Zee]

Thanks, I'll look into my thinking.

The link won't connect. Went to their site but no luck on your article.

Hmmm...I'm not sure why the first link didn't work. Here is the link again:

http://www.tscpa.com/journal/articles/use_of_the_newly.pdf

The link looks the same...I tested it and it works this time, but you're correct the first didn't.

[RLymanC]

Artical

came up OK this time,,,thanks.

Will recalculate for for the individuals that have had a rental for the past 10 years and plan to move in Jan. 1st 2010 and sell after 2 years. Looks like only one year of non-qualified use.

Thanks again for your research. The fringe benifits of being "The Tax Book" user and this site are priceless.

Have a great upcoming tax season and a very Merry Christmas (not holiday) :>)

[Gene V]

came up OK this time,,,thanks.

Looks like only one year of non-qualified use.

That is correct. from Pub. 17, page 111
Nonqualified use
nonqualified use is any period
after December 31, 2008, during which the prop-
erty is not used as the main home.

[RLymanC]

Zee--Gain

However, any gain due to depreciation plus 15% of any remaining gain is taxable and not excluded as Section 121 gain.

Is the depreciation calculated from the first year of rental or beginning in 2009?

[tilt53]

My eyeballs are spinning

trying to read all that and visualize it. Does anyone have a link to a good worksheet or chart? I love to read, but sometimes the information ties me up in knots. I'm a visual person and would really appreciate some help.

[Zee]

However, any gain due to depreciation plus 15% of any remaining gain is taxable and not excluded as Section 121 gain.

Is the depreciation calculated from the first year of rental or beginning in 2009?

I believe the gain equal to any depreciation you deducted (or could have deducted) for periods after May 6, 1997 cannot be excluded as Section 121 gain. So, it would start with the date the property was first made available for rental after May 6, 1997.