Capital gains on real estate when selling former primary residence
Hey everyone, I need some advice about capital gains taxes on real estate. I've got two houses right now - one in Montana that I lived in from 2017-2021 and another in Oregon where I've been living since 2022 up to now. I'm planning to sell the Montana house in September and should be walking away with around $130k after all the fees and paying off the mortgage. My main question is whether I can skip paying capital gains tax since I lived in the Montana house for 4 years and it's been less than 5 years since I moved out. Also, will I still get some kind of tax form from the title company or mortgage lender even if I don't owe capital gains? I've heard about the 2-of-5 years rule but want to make sure I understand it correctly before I make any decisions. Any help would be super appreciated!
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Andre Dupont
You're on the right track with the 2-of-5 years rule! The IRS allows you to exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) on the sale of your home if you've owned and used it as your primary residence for at least 2 years out of the 5-year period ending on the date of sale. Since you lived in the Montana home from 2017-2021 (4 years) and you're selling in September 2025, you satisfy both requirements - you owned it and lived in it for at least 2 years, and you're selling within 5 years of moving out. Even though you qualify for the exclusion, you'll still receive a 1099-S form reporting the sale from the closing agent or title company. This doesn't mean you owe taxes - it's just required reporting. You'll need to report the sale on your tax return using Form 8949 and Schedule D, but you'll exclude the gain based on the Section 121 exclusion.
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Zoe Papanikolaou
•Thanks for this explanation. Quick question - does it matter if the Montana property was rented out during the time after moving out? Like if they rented it for a year or two after moving to Oregon, does that affect anything?
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Andre Dupont
•Renting the property after moving doesn't affect your eligibility for the capital gains exclusion as long as you meet the 2-out-of-5-years use test. The IRS looks at whether you used the home as your primary residence for at least 2 years during the 5-year period ending on the date of sale, regardless of what you did with the property afterward. If you did rent the property after moving out, you should be aware that you might need to recapture depreciation if you claimed it during the rental period. The depreciation recapture is taxed at a maximum rate of 25%, even if you qualify for the Section 121 exclusion on your capital gains.
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Jamal Wilson
I went through a similar situation last year with my Colorado house. Initially I was worried about capital gains, but I found this amazing tool called taxr.ai (https://taxr.ai) that analyzed my situation and broke everything down clearly. It confirmed I was eligible for the full exclusion under the 2-of-5 year rule just like you. What I loved about it was that it looked at my specific situation including the improvements I'd made to the property (which increased my basis and reduced potential gains). The tool also generated a detailed report I could show my accountant explaining exactly why I qualified for the full exclusion. It even pointed out some deductions related to the sale I hadn't considered!
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Mei Lin
•Did it help with figuring out how to document everything for your tax return? I'm in a similar position but worried about doing something wrong and triggering an audit.
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Liam Fitzgerald
•How accurate was it compared to what your accountant said? I've tried other tax tools before and they sometimes miss nuances that end up being important.
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Jamal Wilson
•It definitely helped with documentation. The report it generated listed exactly what I needed to keep - closing statements from both the purchase and sale, evidence of improvements I made (which increases your cost basis), and proof of how long I lived there. Having everything organized made filing much smoother. As for accuracy, my accountant was actually impressed. He said the analysis matched exactly what he would have recommended, especially regarding the capital improvements I'd made over the years which reduced my taxable gain. He mentioned that people often forget to account for these improvements, which can make a big difference in your tax basis.
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Mei Lin
Wanted to follow up on my experience with taxr.ai that was mentioned above. I was skeptical at first but decided to try it since my situation was complicated (I had partially rented out my previous home). The tool was surprisingly thorough - it asked detailed questions about my use of the property and improvements I'd made. The analysis confirmed I qualified for a partial exclusion and showed exactly how to calculate it. What really impressed me was that it explained which home improvements increased my basis (saving me about $8k in taxes!) and which were just repairs. I followed their documentation guidelines and just finished my taxes without any issues. Wish I'd known about this when I sold my first house years ago!
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GalacticGuru
If you're getting stressed about hearing back from the IRS after filing with this sale, I highly recommend Claimyr (https://claimyr.com). I sold a rental property last year and had questions the IRS website couldn't answer clearly. After trying to call the IRS for THREE DAYS and never getting through, I found Claimyr through a YouTube video (https://youtu.be/_kiP6q8DX5c). They got me on the phone with an actual IRS agent within 45 minutes when I'd been trying unsuccessfully for days. The agent confirmed exactly how to report my situation and what documentation I needed to keep. Saved me tons of stress and potentially an audit headache. It's basically a service that navigates the IRS phone system for you so you don't have to wait on hold forever.
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Amara Nnamani
•How does this actually work? Do they have some special connection to the IRS or something? Seems too good to be true that they can get through when no one else can.
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Giovanni Mancini
•Sorry but this sounds like a scam. Why would anyone need to pay a service to call the IRS? I eventually get through when I call, it just takes patience. And why would the IRS give them special access?
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GalacticGuru
•They don't have special IRS connections - they use technology to navigate the IRS phone system and wait on hold for you. When they reach a human, they call you and connect you directly to the IRS agent. You're still talking to the official IRS, just without the hours of hold time and frustrating disconnects. I was skeptical too, but it's just a time-saving service. Think of it like paying someone to stand in line for you. The IRS isn't giving them special access - they're just navigating the regular phone systems more efficiently than most of us can. I tried for days during my lunch breaks and kept getting the "call volume too high" message before being disconnected.
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Giovanni Mancini
I need to eat some crow here. After posting my skeptical comment about Claimyr, I ended up with a complicated question about my capital gains that wasn't addressed in IRS publications. Tried calling the IRS myself and got nowhere after multiple attempts. Out of desperation, I tried Claimyr last week. Within an hour I was actually speaking with an IRS representative who answered my specific questions about how to handle the sale of a property I had inherited and then lived in for a while. The rep walked me through exactly how to document everything on my return. I've been filing my own taxes for 20+ years and have never been able to get actual clarification from the IRS before filing. Honestly worth it just for the peace of mind.
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Fatima Al-Suwaidi
Just a heads up - make sure you're calculating your basis correctly. Original purchase price + capital improvements - depreciation (if you ever rented it out) = adjusted basis. Then your capital gain is sale price - selling costs - adjusted basis. I messed this up on a previous sale because I didn't track all my improvements over the years (new roof, HVAC, kitchen remodel). Ended up overpaying taxes because I couldn't prove the higher basis. Start gathering those receipts now!
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Dylan Cooper
•What exactly counts as "capital improvements"? Does regular maintenance count? Like if I replaced the dishwasher when it broke, is that an improvement or just a repair?
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Fatima Al-Suwaidi
•Great question about capital improvements vs. repairs. The basic rule is that improvements add value to your home, prolong its useful life, or adapt it to new uses, while repairs just keep your property in good working condition. Replacing a broken dishwasher with a similar model is generally considered a repair and not a capital improvement. However, if you upgraded to a significantly better dishwasher or remodeled the entire kitchen, that would count as a capital improvement. Examples of capital improvements include: adding rooms, replacing the entire roof, paving the driveway, installing central air conditioning, replacing all windows, or adding a fence. Regular maintenance like painting, fixing leaks, or replacing broken fixtures usually doesn't count.
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Sofia Morales
Has anyone used TurboTax for reporting home sales? I'm wondering if it handles this situation well or if I should use a CPA this year. My sale is similar to the original poster's situation.
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StarSailor
•I used TurboTax last year when I sold my primary residence. It was pretty straightforward - it walks you through a series of questions about how long you owned and lived in the home, and then calculates whether you qualify for the exclusion. The software also helps you calculate your adjusted basis including improvements.
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