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BOOKWORM · 08-09-2005, 10:32 PM

What's the rules on renting, THEN selling??

I know that I have to live in my house for 2 of the past 5 years to be elgible for the big owner tax writeoff ($250,000 for singles, $500,000 for couples).

Say I rented out the house and hit the road on Jan 1, 2004. On the road all of 2004 and 2005. I think I would have to either move back in or sell it during 2006 to be elgiable.

Any nasties to look out for???
Will the tax man try to hit me for deductions I took during the two years it was rented out or for the increase in value while it was rented??

BOOKWORM · 08-09-2005, 10:32 PM

What's the rules on renting, THEN selling??

I know that I have to live in my house for 2 of the past 5 years to be elgible for the big owner tax writeoff ($250,000 for singles, $500,000 for couples).

Say I rented out the house and hit the road on Jan 1, 2004. On the road all of 2004 and 2005. I think I would have to either move back in or sell it during 2006 to be elgiable.

Any nasties to look out for???
Will the tax man try to hit me for deductions I took during the two years it was rented out or for the increase in value while it was rented??

Novi · 09-02-2005, 03:48 AM

Hello Bookworm, I do not know how your tax laws in the US are structured but I would seek the opinion of a real estate lawyer, it would be well worth the cost. In Canada the big tax savings come if the house was your principle residence. If it was rented out it was an investment and is treated differently tax wise.

Photog · 09-02-2005, 01:17 PM

If you lived in the house for the two years prior to Jan 1, 04, you have until December 06 to sell it and used the exclusion. You don't need to move back into it.

The deductions you take while renting it have no effect, except that the depreciation reduces your cost basis.

Any increase in value while you are renting it increases your capital gain.

The total capital gain is the amount you sell it for, less selling costs, less your cost basis. That is the amount from which you subtract the 250,000 or 500,000.

I hope this helps.

Bill

agkcpa · 02-14-2006, 08:00 AM

What "Photog" said is mostly correct.

However, depreciation allowed during the rental period not only reduces your basis, but IS NOT available for the exclusion.

For example, if your total gain is $240,000, you would think that you would owe no tax. This is incorrect. You would owe tax on the "recapture" of the depreciation allowed during the rental.

You may say..."well I just won't claim depreciation while renting". Howeber the depreciation recapture rules apply to depreciation allowed or allowable. This means there is recapture regardless of whether or not you actually claimed the depreciation.

This is not meant to keep you from renting your property. I just wanted you to be dealing with all of the facts.

Long distance rentals can be a real pain, but if Southern CA real estate continues to increase in price at even 1/2 the historical rates, you should do well. Also, keeping your home for at least the first year of travel is a comfortable "fall-back" for many.

Good luck.