|
Dear Tax Talk,
My father bought some property and built a home on it in the 1930s. He built most of the home himself, so his
cost basis is very little. Today it is worth about $350,000. His wife died two years ago, and he has been in
an assisted living facility for one and a half years. If he is in the facility for more than another one and
a half years, will he be subject to capital gains if we sell the home? If we now rent the home out, will that
impact the capital gains exemptions?
-- Jay
Dear Jay,
As you understand, gain on the sale of a home can be excluded from income if the property was your primary
residence for two of the last five years. Hence, if your father is out of the house for three years he may
lose the gain exclusion.
The gain exclusion rules state that the home has to have been your primary residence that
you owned and occupied for two years within the five years ending on the date of its sale. Your father would
clearly meet the ownership test, but may have trouble meeting the use test due to his confinement in an
assisted living facility.
There is an exception to the use test if, during the five-year period before the sale of your
home you meet the following conditions.
 |
| Exception to use test |
|
|
|
|
Under this exception, you are considered to live in your home during any time that you own the
home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to
care for people in your condition.
This exception would also ignore
any period of absence while the house is rented.
Therefore, renting the house will not preclude
your father from excluding the gain. Any depreciation
claimed for the rental period would not be excluded
from income upon the sale.
|
