Sale of house - was rental, then primary home
We know of the tax free sale of your primary home, up to the exclusion limit of $500,000. We have heard that this tax benefit also can extend to the sale of a rental home if it is converted to a primary residence for at least 2 years before sale. Is this accurate?
So, would there be tax due on sale of a rental house owned over 20 years (an on which depreciation has been taken during this time), and which was converted to primary residence for 2 years, and then sold?
Purchase: $60,000 in 1985 and use as rental 1985 - 2010.
Depreciation while rental: $58,000
Convert rental to primary residence: 2010 - 2012.
Sold: $100,000 in 2012
Is the depreciation ($58,000) taxed when sold at 25% or is it exempt because of use as primary residence at least 2 years in 5 years?
Is the gain taxed at 15%, or is gain exempted either due to use as primary residence or due to gain being less than the $250,000/$500,000 exemption? If some/all of the gain is taxed, how is the ratio of qualified use (as primary residence) vs. non-qualified use (as rental) calculated? Does calculation go back to all years of ownership or only period since 2008?
Trying to read the law on this, including a 2007 revision, only makes it more confusing. I would very much appreciate anyone who can clarify how this situation is handled. Thanks in advance for your help.