Live In House 2 Years Pay No Taxes ?
I was wondering if I've understood it correctly that fact that if you live in your residence for 2 out of 5 years you can take that gain tax free. No capital gains or income taxes on this. Is this true ??
Yes that is correct. The sale of a principle residence is generally not reported on a taxpayer's tax return if they owned and used the home as a principal residence for at least 2 out of the last 5 years prior to the sale. Single taxpayers can exclude up to $250,000 of gain and married taxpayers can exclude up to $500,000 of the gain. However, If the taxpayer uses an office in the home deduction, a portion of the gain may be taxable.
I was under the impression that the exception applied even if you had just lived there for 2 of the previous 5. I will look on the irs' site. A CPA once told me that even if you had rented 1 year, then bought it, lived in it a year after that, then sold you would still qualify... Let me check
Here is a direct quote from the IRS site...
http://www.irs.gov/faqs/faq-kw27.html
If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can exclude up to $250,000 of the gain ($500,000 on a joint return in most cases).
So I guess that you have to have owned it for 2 years, and lived in it for 2 years, but not necessarily at the same time.
Example: You could have rented it for 2 years from the owner, and lived in it. Then you bought the home, moved out and rented it or 2 years. You would still qualify.
This is just my opinion, check with your CPA for more details!
sry for the side note... go to section 10.1, to see the qoute, you will have to scroll down a little bit.