The Benefits of Selling Overland Park Real EstateThe Benefits of Selling Overland Park Real Estate
As you know, you are allowed to sell your principal residence once every two years and exclude up to $250,000 ($500,000 for a married couple) of the gain of the sale on your Federal income tax. Please note: This is not a once in a lifetime tax savings and you don’t have to be any certain age or buy a more expensive property. If you meet the two-year residence test you can sell your principal residence every two years if you are so inclined and the market cooperates. But this tax saving does not affect rental property unless you convert the rental to your personal residence, live in it for two years and then sell it.
Converting From Rental to Personal Residence
If your Overland Park real estate holdings consist of both a personal residence and a rental, you can sell your personal residence and exclude up to $250,000 ($500,000 for a married couple) on the gain. Then you move into your rental, live in it as your personal residence for two years and then sell it, again benefiting from the $250,000 or $500,000 exclusion. This is true even though most or all of the increase in value occurred before you converted the property to your personal residence.
What About Depreciation?
Any depreciation taken on the rental property after May 6, 2997 will be subject to “recapture” and tax. But any depreciation taken before that date will be forgiven and will be available for the Capital Gain exclusion.
Two Out of Five Rule
In order to sell Overland Park real estate as your personal residence, you must have lived in it for two out of the five-year period ending on the date of the sale of the property. This means that you can buy a second home and live in it as your personal residence while renting out your first home. If, in a couple years you decide to sell your first personal residence you can sell it and still benefit from the $250,000 to $500,000 Capital Gain tax exclusion. The law says that the home must be your personal residence for at least two out of the past five years.
It is possible to get a partial exclusion to the period of residence provided you sell due to a change in your place of employment, heath or unforeseen circumstances. Unforeseen circumstances have been interpreted fairly liberally to include divorce or separation, the birth of twins necessitating a larger home and steep increases in association dues. Best to check with your tax person if you contemplate using this flexible interpretation.