IRS has provisions for homeowners regarding the sale of a principal residence that allows for temporarily renting the home without losing the ability to exclude the gain if the home is sold under the correct conditions.
The rules for the exclusion of gain on the sale of a principal residence are:
Let's pretend that a person had owned a home from more than two years. This person married and moved into their new spouse's home two years, six months ago. That person decided to sell the home and would have approximately $200,000 of gain in the sale.
If the property is put on the market, sold and closed prior to the three-years that they moved out, the home would still be eligible for the section 121 exclusion on the sale of a principal residence. If the sales closes after that three-year period, the owner would owe tax on the gain. If the long-term capital gains rate for the owner was 15%, they would owe approximately $30,000 in taxes.
If you or a person you know is in a situation like this, they should certainly seek professional tax advice as well as discussing the marketing and value of the property with their real estate professional. This is something that I have experience with; call me at (262) 348-3233. The timing is very important and critical to a favorable outcome.
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Bob is dedicated to offering the finest real estate service available in the Lake Geneva area. He attempts to make each buyer or seller he works with feel like they are the one and only client he has and strives to make each transaction a pleasurable experience with the least amount of problems, stress, and inconvenience to them.