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Sale of rental former primary residence

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    Sale of rental former primary residence

    Clients are going to move from their primary residence and convert it to a rental. They have lived in it for 25 years so it qualifies for S121 exclusion. My question is if they sell it within three years after converting to rental, do they still qualify for an esclusion or partial? TTB pg. 6-21 under Nonqualified Use refers to any period in or later than 2009 which seems to mean my clients would not qualifiy for any exclusion even if they sell it within three years. Any comments would be appreciated. Thanks.

    #2
    Nq

    The Nonqualified use requires them to use a formula to determine their exclusion. Read that whole section of the instructions.

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      #3
      I think if you work the calculations in the worksheet on TTB 6-21 you'll see if there is any excludable gain. The only problem is you have no figures yet for some of the entries, but you could work some scenarios.

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        #4
        Originally posted by Greenbriar View Post
        Clients are going to move from their primary residence and convert it to a rental. They have lived in it for 25 years so it qualifies for S121 exclusion. My question is if they sell it within three years after converting to rental, do they still qualify for an esclusion or partial? TTB pg. 6-21 under Nonqualified Use refers to any period in or later than 2009 which seems to mean my clients would not qualifiy for any exclusion even if they sell it within three years. Any comments would be appreciated. Thanks.
        Haven't checked it out but am pretty sure they would qualify for some (if not total) exclusion if sold within 3 years. As I recall it does get a little tricky. The IRS somewhere does give some examples to lazy to find right now.

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          #5
          From Pub. 523

          Example 2.

          William owned and used a house as his main home from 2005 through 2008. On January 1, 2009, he moved to another state. He rented his house from that date until April 30, 2011, when he sold it. During the 5-year period ending on the date of sale (May 1, 2006ľApril 30, 2011), William owned and lived in the house for more than 2 years. Because it was rental property at the time of the sale, he must report the sale on Form 4797. Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. Because he met the ownership and use tests, he can exclude gain up to $250,000. However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next.

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