Capital Gains

What is the name of your state? currently reside in Texas...property is in Virginia

When Congress reenacted the Capital Gains exclusion for selling primary residential property, they neglected to make allowances for military being transferred on orders. They will soon correct that with legislation having passed one house and on the agenda for the other. Now my question...

I am active duty military. I bought a house in 1988 and lived in it until 1992 when I was transferred. It has been rented since then. The current tennants want to buy it. I have since bought a house in Texas as our primary residence. Will I be eligible for the Capital Gains exclusion on the house in Virginia?
Thanks

[abezon]

No. In order to qualify for the exclusion, you must have owned and lived in the house for 2 of the last 5 years. The last time you lived there was 1992, so you don't qualify. You'll need to file a 4797 (Sale of Business Property) to recapture the depreciation you have/should have been taking on the house, and a Schedule D to report the gains on the land (and maybe the house).

If you haven't been taking depreciation, amend your last 3 years' returns to claim it. The refunds will help offset the taxes you'll pay next year.

Thanks. I have been claiming depreciation, but thanks for the reminder. I am familiar with the 2 in 5 rule (sorta), but when we had capital gain exclusions previously, if you were military and transferred on orders, those years were taken out of the equation. Not sure how the new legislation will read. Do you have any idea?
Thanks

[abezon]

The military exception I know of says that you qualify for a reduced exclusion if you sold a home within the last 2 years, but have to sell this home due to transfer or other unforseen circumstances.

Example: T sells a house and excludes $250,000 of gain, then buys a new house. One year later, T is transferred to a new state and has to sell the new house. T may exclude up to $125,000 of gain when T sells the new house.

If you just buy a series of houses and move in tenants when you are transferred, you don't get to claim the capital gains exclusion for each house just because you're in the military. Also, any changes in the tax code will likely not take effect until tax year 2003.