Do I qualify for capital gains exclusion?

I have 2 town home units, 9 & 10. I lived in #10 since 2006 and rented #9. I want to sell both and buy a new larger home using capital gains. I will have approximately $200,000 from #10 and $150,000 from #9 in capital gains. The new home will cost approximately $500,000. If I use these gains as down payment for a new home, do I qualify for capital gain exclusion under Taxpayer Relief Act of 1997?

Real Estate, Taxes
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August 2016

To qualify for the 121 tax exclusion you must pass two tests, the use test and the ownership test. You must live in your primary residence 2 out of the last 5 years to qualify. You can exclude up to $250,000 if you are married and up to $500,000 if you are married.  Since you lived in #10 for at least two out of the past five years and that $200,000 is under $250,000, you do qualify for the capital gain exclusion for that home. However, rental #9 is unfortunately fully taxable at capital gain rates. You could do a 1031 exchange on #9 and buy another rental, but it has to be a rental for a rental – it can’t be a rental for a residence. There’s really no way to roll a gain from a rental into a principal residence.

August 2016