I am going to move into a home this year 2018 which I have owned for 6 years but leased out (initially to family members and later to general tenants). We plan to live in the home as our primary residence for at least 2 years. In other words the house has been used for business income (rental) since 2012 but will be our primary residence from 2018 until at least 2021.

Will it be exempt from Capital Gains Tax if it has been our primary residence from 2018 - 2020?

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    Specifying the country helps when asking tax questions. – mhoran_psprep Feb 14 '18 at 13:10
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    "Present law" ... of which country? Please edit your question and add a corresponding country tag. – Chris W. Rea Feb 14 '18 at 13:21
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    Did you claim depreciation on the house in prior years? I believe in the US that lowers your cost basis for capital gain purposes. – D Stanley Feb 14 '18 at 14:17
  • @DStanley it does indeed. – Hart CO Feb 14 '18 at 18:21
  • Assuming this is the USA, my understanding is that you have to have lived there for a minimum of 2 years in any 5 year period. So you would not be eligible for that exclusion. I do not know if that means you're liable for CGT on the appreciation from 2012-2018 (when you move in) or 2012-2016 (five years before you sell it). – Rupert Morrish Feb 14 '18 at 20:24

IF US and you live in the home for 2 years of the 5 years before selling, and don't rent it (or otherwise use for business) in year of sale, and also own it for 2 of the 5 years before selling (in your example, all 5), you can exclude the capital gain up to $250k single or $500k couple filing jointly. See the IRS publication about selling your home, cleverly titled Selling Your Home to prevent anyone from realizing this, at https://www.irs.gov/forms-pubs/about-publication-523 . JCTA'17 did not change this, although there were proposals to do so.

As DStanley and HartCO commented, depreciation that you took or were permitted to take as a business expense during the rental period is subtracted from your basis, which has the effect of adding to your gain; see p.3 of the worksheet.

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  • this is how the current U.S. tax law works. The property must be principle residence for two years out of past five. – rocketman Feb 15 '18 at 16:19

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