Question

Sally and Joe owned a home on Lake Michigan and they also own a house in Florida. They had not lived in the house on Lake Michigan for the last five years, since it was too cold, and they retired to Florida. They want to sell the property in Michigan, and not pay capital gains taxes on up to $500,000 profit on the sale. Their accountant tells them they cannot take this deduction. What is the problem with the deduction?

Answer 1

Sally and Joe did not live in the home for the required two of the last five years to qualify for the deduction.

Explanation:

In fact, you must satisfy both the possession requirement and the use test in order to qualify for the waiver from Section 121. Unless you owned and then used your house as your primary place of residence is minimum period two years from the five years preceding the date of sale, you are liable for exclusion. During different 2 years, you can fulfil your ownership and use tests. However, during most of the 5-year period that ends on the date of purchase, you must fulfil both tests.

You do not have to declare your rental income to the IRS if you visit to work in the house for 14 days or less in the year. There is something to that for visitors who might reap the benefits of short-term activities such as major sports, concerts and natural occurrences in their city.