Question:
“I’ve heard about avoiding taxes when you sell your home. There’s some rule about owning and living in the house two years. My wife and I rented a house nine years and finally bought it in 2012. Then in 2013 we moved to Seattle. So we didn’t own and live in it at the SAME TIME for two years. Can we still sell and not pay taxes on the gain?”
Answer:
Per IRS Code 121, you can sell a home owned and used as your primary residence for at least 2 of the past 5 years and exclude up to $250,000 in capital gain ($500,000 if married and filing a joint return).
For your situation, the IRS website seems to clearly say you can own the home 2 years and live in it 2 years at DIFFERENT times and still get the (in your case) $500,000 exclusion. To quote from this portion of the IRS website:
“Ownership and use tests met at different times.
You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.”
Of course, please verify this with your tax professional.
