• Wander CPA

It's YOUR Real Estate Gain. Don't give it to the IRS!

Updated: Aug 5, 2020

Do you own a rental property? Are you thinking about buying one? Do you have the option of making it your primary dwelling for a period of time? If you answered “Yes” to the above, this simple strategy could allow you to deduct $250K ($500K on a joint return). Depending on your tax rate, this could be a hefty sum.

I recently was preparing a tax return for a client who sold their rental property in 2019. After discussion, with them, it turns out that they lived in it…for one and a half years before renting it out. Had they known about the ability to deduct the gain, and the two-part test (listed below), they could have saved themselves from even having to report the sale.

The two-part test is as follows:

1. Ownership Test: They must have owned the property for two of the five years ending on the date of the sale.

2. Use Test: They must have lived in the home as the main home for at least two of the 5 years ending on the date of the sale.

If you are thinking about selling your home in the next couple of years and have the ability to live in it, you could save yourself a lot of money.

Now, they will owe about $40K in taxes on the gain. I don’t know if they would have had the ability to stay in the house for another 6 months, but the $40K could have at least been part of the conversation. If you are reading this, hopefully you will not make that same mistake.

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Disclosure: This article is for information purposes only. Do not make a purchase/ sell/ tax decision based solely on this article. Use it in conjunction with other research.

If you would like to speak with somebody about your personal situation, email us at

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