Captial gains Question

[JoshDom1898]

What is the name of your state? Az

Ok, so I've read a few books and some seem to say conflicting information so I don't know which to believe. One book says that you must live in a residence 2 out of the last 5 years prior to sale to exclude up to 250k gains when you sell. So that means if I bought a house on Sept 1, 2000 and lived in it from sept 2, 2000-sept 3, 2002, then moved out for 3 years I can claim the exemption. However, does this mean that out of every five years I must reside in the house two? So if I owned a house for 10 years I would have to live in it 4 years to claim the exemption? So all in all, I must own a house for a minimum of 5 years and live in it 2/5 years to get the 250k emeption.

Another book I read said that the five year rule does not apply, as long as you live in a house for a minimum of two years you can claim the exemption. So if I bought on Sept 1, 2000 and sold it Sept 3, 2002 and lived in it for those two years I get the 250k cap gains exemption.

 

[tranquility]

You asked:

So if I owned a house for 10 years I would have to live in it 4 years to claim the exemption?

You correctly wrote:

live in a residence 2 out of the last 5 years prior to sale to exclude up to 250k gains when you sell

With the small change of adding ownership as well, 2 of the *last* 5 years.

So all in all, I must own a house for a minimum of 5 years and live in it 2/5 years to get the 250k emeption.

No, you can satisfy the test in less than 5 years. You cannot take the exemption more than every 2 years.

So if I bought on Sept 1, 2000 and sold it Sept 3, 2002 and lived in it for those two years I get the 250k cap gains exemption.

Yes.

 

[LdiJ]

I am not sure that he is going to understand that, since he didn't understand the book.

On the day that you sell the house, you have to look back over the last 5 years. If you didn't live in the house for 2 of those specific 5 years, then you cannot claim the 250 capital gains exclusion.

Example. You sell a house in september 2006. You have to look back to september 2001. If you didn't live in the house for two years between september 2001, and september 2006, you cannot claim the exclusion. It doesn't matter if you owned the home for 25 years and lived in it for 20. If you didn't live in it for two years between those dates...no exclusion.