Tax rules no longer allow living in a rental to avoid capital gains taxes
By
Liz Weston
Summary
A reader asks about tax strategies for selling a long-held rental property, specifically whether living in it for two years could reduce capital gains taxes. The response explains that the tax code changed in 2009, eliminating the ability to convert a rental to a primary residence and then exclude capital gains. The reader faces depreciation recapture and capital gains taxes on the full profit. The advice suggests selling and paying the tax is the cleanest solution, though 1031 exchanges and installment sales are mentioned as alternatives.
Source
bskyTax rules no longer allow living in a rental to avoid capital gains taxessandiegouniontribune.comKey quotes
· 3 pulledCongress dramatically shrank the loophole that once allowed people to reduce or eliminate capital gains on rental and vacation properties by converting them to primary residences.
If you're done with being a landlord, the cleanest solution might be to simply sell and pay the tax.
We know we'll have to recapture depreciation, but we always thought we could live in the property for a couple of years to save some on the capital gains taxes.
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