Just wanted to add that timing your sale might be important here. Since you've already used it as a rental for 2.5 years, you only have another 2.5 years before you'd fail the 2-of-5 year test! If you delay selling and cross that 3-year rental mark, you might lose your eligibility for the exclusion entirely. Something to keep in mind if you're on the fence about selling now vs later.

This is such a common situation and you're definitely on the right track! I went through almost the exact same scenario a few years ago - lived in my house for 8 years, converted to rental for about 2 years, then sold. The good news is that you absolutely can still claim the capital gains exclusion since you meet the 2-of-5 year residence test. The rental period doesn't disqualify you from the exclusion at all. A few things to keep in mind that helped me: - Make sure you have good records of when you moved out and started renting (lease agreements, utility transfers, etc.) to establish the timeline - The depreciation recapture that others mentioned is real - I ended up owing about $8,000 on that portion at the 25% rate - Don't forget about any improvements you made during your 9 years of living there - those can be added to your cost basis One thing I wish I had known earlier is that you're actually running against a clock now. Since you've been renting for 2.5 years, you only have another 2.5 years before you'd lose eligibility for the exclusion entirely. So if you're planning to sell anyway, sooner rather than later might be beneficial tax-wise. The whole process was much more straightforward than I expected once I understood the rules. You're in a good position!

I'm just curious - how much was the depreciation recapture tax hit for those who had to pay it? I'm in year 2 of renting out my primary residence and considering moving back in specifically to avoid capital gains taxes when I eventually sell. My house has appreciated about $180k since I bought it, and I'm trying to calculate if moving back for 2+ years makes financial sense versus just selling it as an investment property and paying the capital gains tax.

Based on your situation, you should be able to claim the full Section 121 exclusion without any issues. You clearly meet the ownership and use test (2 out of 5 years before sale), and the key factor working in your favor is that you moved back into the home and lived there until you sold it. The non-qualified use rules from 2008 specifically state that any period AFTER the last date you used the property as your principal residence doesn't count against you. Since your rental period (2015-2017) occurred BEFORE your final period of residence (2017-2024), it shouldn't affect your exclusion eligibility at all. However, you will need to recapture any depreciation you claimed during the rental period at the 25% rate - this is separate from the Section 121 exclusion. Make sure you have good records of the rental period dates, and keep documentation showing when you moved back in (utility bills, address changes, etc.) in case the IRS ever asks. Given the complexity and the significant money involved, you might want to consider getting a professional analysis of your specific situation to make sure you're reporting everything correctly. The peace of mind is usually worth it when dealing with large capital gains.

One important detail about worthless securities that hasn't been mentioned: Make sure you have documentation showing exactly WHEN the securities became worthless. This matters because you must claim the loss in the correct tax year. The IRS is pretty strict about this. If you claim the loss in 2024 but the stock actually became worthless in 2023, they could disallow your deduction. Look for bankruptcy filings, public announcements of liquidation, or final SEC filings if it was a public company. Also, if your company did a formal bankruptcy, check if you received any kind of distribution, even a tiny one. This could affect how you calculate your loss.

Just wanted to mention another good resource: if your company had a transfer agent (the company that managed your stock issuance and ESPP), try contacting them directly. Even if the company is gone, the transfer agent often maintains records. In my case when a company went under, Computershare was the transfer agent and still had all my records. They provided documentation showing my purchase history and confirmation that the shares had no value after the company liquidated.

Has anyone actually gone through with surrendering a policy like this? What forms did you need to file with your tax return? I'm in a similar situation with a policy worth about $140k and surrender charges of $35k, so I'm trying to prepare for the paperwork nightmare.

This is exactly the kind of situation where you really need professional guidance, but I understand the frustration of waiting for your accountant meeting while losing sleep over it! One thing that might help ease your mind - yes, you're unfortunately correct that you'll be taxed on the full $190k even though you'll only receive $138k after surrender fees. The IRS treats the policy transfer as taxable compensation at the moment of transfer, regardless of what happens afterward. However, there might be some silver linings to explore with your accountant. Since you're being taxed on $190k but only receiving $138k in cash, the difference could potentially be treated as a loss in certain circumstances. This depends heavily on how your "basis" in the policy is calculated and whether the surrender qualifies under specific sections of the tax code. Before surrendering, definitely explore the option of reducing the death benefit instead of full surrender - this often dramatically reduces premiums while avoiding those brutal surrender charges entirely. You might be able to make the policy manageable rather than losing $52k to fees. Document everything from your employer, the insurance company, and any communications about the transfer. You'll need this paper trail to properly calculate your basis and avoid any potential issues with the IRS down the road.

Has anyone used TurboTax for filing with the Danish Double Taxation Agreement? I'm in a similar situation but unsure if their international tax support is good enough or if I need to find a specialized preparer.

I went through this exact same situation last year with a Danish employer! One thing that really helped me was getting a copy of the "Erklæring om skattemæssigt hjemsted" (Certificate of Tax Residence) from the IRS. This is a form that proves you're a US tax resident, which you can submit to your Danish employer to potentially reduce the withholding rate under the treaty. Also, make sure you understand the difference between the 22% your employer is withholding and what Denmark is actually entitled to under the treaty. For employment income, Denmark can tax it since you're working for a Danish company, but the US gets to tax it too since you're a US resident. The treaty just ensures you get credit for the Danish taxes paid when filing your US return. One more tip - keep excellent records of exactly when you performed work and where. If you ever traveled to Denmark for work meetings or training, that could affect how the income is sourced under the treaty. The IRS Publication 901 has a good overview of US tax treaties that helped me understand the basics before diving into the Denmark-specific provisions.