Question:

We currently own a single family home that we rent. Can we move into the rental for two years, leaving our current residence vacant, then sell the rental and move back to our original residence? Would we be able to take the $500,000 exclusion since we are married and file jointly?

Answer:

Yes. You must occupy a home for two of the past five years to qualify for the capital gains prime residence deduction. You may use the prime residence deduction more than once.

However, before going further speak with a tax professional. In particular, ask how depreciation is to be taxed when the rental is sold.

As to the current residence, why leave it vacant for two years? A vacancy of more than 30 days will create insurance issues. Speak with an insurance broker for specifics.

Lastly, would it be better to simply sell the current residence and then move into the rental unit? This seems a lot easier.

Written by Peter G. Miller August 12, 2005 

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