I have a client who owned his primary residence for 8 years since 2008 and rented it out for 2016,2017 and 2018 and sold it in 2019 (1/2/2019). Does he qualifies for section 121 exclusion in full or it is considered non-qualified use. I read something about Housing Act of 2008 that partial exclusion is allowed and 2 out of 3 year rule is no longer eligible. Any thoughts, guidance or materials on this topic. I read on IRS website but they have one worksheet on selling primary residence and another worksheet on selling rental on 4797. I am not sure if client qualifies for full exclusion since he owned it for 5 years and lived in it for 2 years during the last 5 years. I know the depreciation will be recaptured on rental years. Thank for help
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If he moved out after 1/2/2016 (which would make it 2-out-of-5 years that it was his Principal Residence), he would qualify. The Non-Qualified Use rules do NOT apply to this situation.
The sale should be reported on Form 4797, and the exclusion should be noted there.
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If I recall correctly you start counting the days backwards from the date of sale for the 5 years. Then you look at the 2 years primary residence duration within that period. It does not have to be consecutive months. It is easier to count if the date of sale is the 1st of the month, then you can count whole months backwards.
Most tax prep software will do the calculation if the correct dates are inputed.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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