Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 04-19-2014, 02:13 PM
Junior Member
 
Join Date: Apr 2014
Posts: 4
Rental to Primary for saving tax on capital gain.

I have a rental property rented out for 2 years now. Can I move in the 3rd year and live for 2 years as primary resident, and sell, and do not incur the capital gain tax, because I would have owned for 5 years and lived for 2 years in it?

Is there any paperwork that needs to be done to declare that this is my primary residence in the third year?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 04-20-2014, 11:41 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,231
Quote:
Originally Posted by jforex78 View Post

#1;I have a rental property rented out for 2 years now. Can I move in the 3rd year and live for 2 years as primary resident, and sell, and do not incur the capital gain tax, because I would have owned for 5 years and lived for 2 years in it?

#2;Is there any paperwork that needs to be done to declare that this is my primary residence in the third year?
#1;correct;as you said, capital gains tax can be a significant burden when selling an investment property. One way of reducing or eliminating your capital gains tax liability is by converting theental property into a primary residence in order to qualify for the primary residence exclusion of $250K for individuals or $500K for couples MFJ; To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test). If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. However, the maximum amount you may be able to exclude will be reduced. for example, say you bought and moved into your main home in Sep. 2011. You sold the home at a gain in Oct. 2013. During the 5-year period ending on the date of sale in Oct. 2013, you owned and lived in the home for more than 2 years. you meet the ownership and use tests.However, as the pty was rental use home, you must recapture so called sec 1250 recapture on your return on form 4797 and the recapture ‘d be taxed as ordinary gain taxed at 25% aslongas your marginal tax rate is 25% or higher .



#2;I guess you need to contact your state's real estate department , to determine if there are any limits or restrictions regarding
The conversion



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
capital gain naveen gehlot Capital Gains 0 02-25-2013 07:22 AM
Why is it beneficial to sell Capital Assets that would have a taxable capital gain in 2012? TaxGuru For 2012 1 12-05-2012 05:13 AM
Primary to rental to primary to rental for Active Duty Ren77 Rental Real-Estate 2 08-06-2012 04:23 AM
Convert primary to rental property /capital gains? rocketman7777 Rental Real-Estate 7 03-06-2012 08:00 PM
capital gain jiten solanki Capital Gains 3 01-05-2011 03:56 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning