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It would be crazy to let 250k in tax free gains get recalculated back in by trying to turn it in to a rental ..just pay the tax and take the money and run ..
Obviously if the op wanted a rental he wouldn’t be selling in the first place.
But it makes no sense to owe 250k in taxes more by kicking the tax can down the road and losing the exclusion while risking even higher tax rates and tenant issues …
One hint is to dig out all your closing statements, including if you ever refinanced. Add up all those costs- most were rolled into the loan so you probably don't remember writing a separate check for them, but they can be pretty substantial and can add to your basis, which would reduce your gain.
There is also a really complicated body of law distinguishing between capital improvements and repairs. Go through your past history and think about everything you spent on the house and run it through the blender as to what is added to basis and what isn't, you might be able to knock the gain down substantially.
As long as you lived in the house as your primary residence, 2 years of the previous 5 years, you may qualify for the exemption.
However, things have been known to change, so check with your tax pro before you start making guesses.
Hasn’t been that way since 2009 ….a rental or second home changed over to a primary later on gets prorated as far as any exclusion when sold …so if you own it 10 years and it is your primary the last two years ,you get only 20% of the exclusion , so the 250k is 50k if single or the 500k is 100k if married.
Anything over the prorated exclusion is taxable.
Only the years prior to 2009 won’t get prorated ..anything after gets prorated
Last edited by mathjak107; 05-05-2021 at 03:12 PM..
Thanks for all of the info. Not to get too in the weeds, but if I replaced the roof, can I only add the amount that I paid above the the amount covered by insurance to the basis amount (ie. I upgraded the roof and paid the difference) or can I add the total price even though it was partially paid by insurance? I'm just trying to think of everything I've spent in "improvements".
Thanks for all of the info. Not to get too in the weeds, but if I replaced the roof, can I only add the amount that I paid above the the amount covered by insurance to the basis amount (ie. I upgraded the roof and paid the difference) or can I add the total price even though it was partially paid by insurance? I'm just trying to think of everything I've spent in "improvements".
You can add the full amount that the new roof cost.
It indicates that home insurance proceeds (i.e. "casualty loss proceeds") reduce basis, and the repairs increase basis. So on net, the basis would only go up by the amount paid in excess of the insurance proceeds.
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