Quote:
Originally Posted by troutman
Every time you change the use of a property, you are considered to have sold the property
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I understand that however it also says:
If the property was your principal residence for any year you owned it before you changed its use, you do not have to pay tax on any gain that relates to those years. You only have to report the gain that relates to the years your home was not your principal residence. For information on how to calculate and report the gain, if any, see "Disposing of your principal residence".
So I have to pay the gain that relates to the years when my home was not my principal residence. Lets say my capital gains on the house would be $150,000 according to the purchase price and the estimated sale price minus realtor fees. According to the schedule this would be line 17. The following is calculated to determine the capital gains from renting it.
Starting with:
Line 18: (=line17) Capital gains before principle residence exemption: 150,000
Line 19:Line 3 (# of years delegated as principle residence) plus 1 (one year granted by law): 7 + 1 = 8
Line 20: Line 18 x Line 19 = 150,000 x 8 = 1,200,000
Line 21: = Line 6 (Number of years owned) = 8
Line 22: 1,200,000/8 = 150,000
Line 23: Net capital gains: Line 18 - Line 22 = 150,000 - 150,000 = 0
Really it is the plus 1 in line 19 that brings me back to not owing any capital gains if I sell it within the year.