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Visitor I

Capital Gains on Sale of Investment Property - Tax Liability

I purchased a home in 6/2013 for $370,000 (H-1). I purchased another home 6/2016 (H-2). At this point H-1 became a rental property and H-2 become my primary. If I sold H-1, it is my understanding that I will receive a exclusion of $500,000 (I’m married) if I have lived in the home for an accumulative time of more than 2 years of the previous 5 years of the sale. 7/2019 will be the time where this exclusion no longer applies.

My question is what my tax liability would be if I sold H-1 after 7/2019? I know all the depreciation would be taxed as ordinary income and there is a capital gains of 15%. I guess my question is whether it would be an all or nothing scenario. I have heard of a pro-rated partial exclusion beyond the 2 of 5 year exclusion but so can’t find exact literature on this. Estimated sale of home today is 585K (crazy growth in the Boston market by has slowed down) and assuming 3% growth from today, in 7/2019 the sale price would be around 605K. Any help is appreciated!!!!
1 Comment
Catalyst V

Capital Gains on Sale of Investment Property - Tax Liability

Understand that no matter what, you will pay tax on the recaptured depreciation. There's no way out of that. Doesn't matter if you qualify for the gain exclusion or not. You *will* be taxed on recaptured depreciation.

Generally, you qualify for the exclusion in its' entirety, or your don't.  But there are exceptions.

For example, if you are active duty military and are required to move under orders before the 2 years are up, then you qualify for a partial exclusion. Also, if you move as a condition of employment or continued employment, that will qualify you for a prorated exclusion also. But if you don't qualify for an exclusion from the 2 year requirement, then it's all or nothing.