Expert: Dick Dennis - 7/2/2006

Question


Hi Dick
The purpose of this email is to see if I qualify to avoid being hit with capital gains.  I purchased my first home in 2-1-04 lived in it for 16 months and then rented it out because I found another home soooner than expected that had a 30 day close. Therefore I rented out my first home. I have been currently living in my second home as of 6-05 which is exactly a year. If I am correct to avoid capital gain you are to live in your primary resident home for at least two years to avoid capital gains. Is it possible for me to move back to my first home and live in it for the 8 months to make it two years and then sell it or would I have to live in it for 2 more years. In doing so, if I were to live in it for 2 more years, it would put me owning my first home over 5 years and is there another restication on capital gains if one is to own a home for more than 5 years. Basically are you allowed to break up the years that you live in a home? I love both homes but my first home has gained over $100K in equity were my second is about $15K I would preferred to have to take a hit and sell my second home under two years instead of the first home.
I look forward to here from you soon.
thank you!
-Wendy  

Answer
I suspect you asked this question of me once before, Wendy. I answered it this way: Yes, you may live in a home as your PRIME RESIDENCE for a TOTAL of two years even if it is broken up into segments. The IRC 121 stipulates that you must live in your residence in two of the last five years in order to receive a capital gains exclusion.

However, that law states UP TO $250,000 gain for a single person (or up to $500,000 for a married couple who file their returns jointly). That means, like in your case, if you live in that property for two-thirds of the two years, you may exclude two-thirds of the taxable capital gain you would ordinarily have.

I recommend you contact a tax expert to make sure how it pertains to you.

I do wish you well.


Dick Dennis             dixiedee13@aol.com

www.OldProblemSolver.com