Capital Gain Question
My wife and I are considering selling our home. We lived in the home for 4 years (1997 thru 2001) We have rented out the home from 2002 thru present and taken depreciation on it on our tax returns the past two years.
We will have a capital gain of over $700k. What is our tax exposure?
On what date (specifically) did you vacate your former residence?
If the interval between the date of your last occupancy and the settlement date on the sale will be less than three years, then each taxpayer can exclude $250K of capital gain from taxes. If you are filing a joint return, your tax liability on a $700K profit will be $30K (15% of $200K).
If the interval between the date of last occupancy and the sale date is more than three years, then your former primary residence is converted to an investment property. Capital gains taxes apply to the entire $700K.