# Question about taxes on vacation-rental home sale

**URL:** <https://boards.straightdope.com/t/question-about-taxes-on-vacation-rental-home-sale/351909>\
**Category:** Factual Questions\
**Created:** [April 9, 2006, 2:19am UTC](https://boards.straightdope.com/t/question-about-taxes-on-vacation-rental-home-sale/351909 "2006-04-09T02:19:29Z")\
**Posts on this page:** 3\
**Page:** 1

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**Author:** ![samclem](https://avatars.discourse-cdn.com/v4/letter/s/a9a28c/32.png) [@samclem](https://boards.straightdope.com/u/samclem)\
**Post date:** [April 9, 2006, 2:19am UTC](https://boards.straightdope.com/t/question-about-taxes-on-vacation-rental-home-sale/351909/1 "2006-04-09T02:19:29Z")

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I have a friend who owns a condo in Florida. Owns, as in bought-it-as-an-investement-write-off. They rented it out over the last 15-20 years. They want to sell it now.

My reading of the tax laws is that they owe Fed tax that is 25% of the depreciated amount they took off their taxes on the house, which in their case is about $200K. They think that if they live in it for two years as their primary residence, they can escape taxes. Supposedly, because Florida has some strange exemption. I say that Fed Tax Law is Fed Tax Law.

Here’s a link to a Bob Bruss article which, in my mind, lays it out clearly. I’ll quote the part that I consider relavent. Bolding in the quote is mine.

[http://www.signonsandiego.com/uniontrib/20060226/news\_1h26mailbag.html](http://www.signonsandiego.com/uniontrib/20060226/news_1h26mailbag.html)

> [@](#):
>
> Next, you can convert your beach house into your principal residence for at least 24 months and then sell it for another tax-free capital gain up to $500,000. **However, if the beach house was a rental and you deducted depreciation on it, the depreciation portion of your capital gain will be recaptured and taxed at a special 25 percent federal tax rate.**

And, yes, I understand that unless a qualified tax lawyer answers this, I’m just getting opinions. I have a local friend who is a professional real estate lawyer with a local firm whom I’m calling on Monday. But my curiosity has the best of me tonight.

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**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\
**Post date:** [April 9, 2006, 2:36am UTC](https://boards.straightdope.com/t/question-about-taxes-on-vacation-rental-home-sale/351909/2 "2006-04-09T02:36:41Z")

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> [@samclem](#):
>
> My reading of the tax laws is that they owe Fed tax that is 25% of the depreciated amount they took off their taxes on the house, which in their case is about $200K. They think that if they live in it for two years as their primary residence, they can escape taxes. Supposedly, because Florida has some strange exemption. I say that Fed Tax Law is Fed Tax Law.

I Am Not - well, I’m not anything, but I am a homeowner.

When did they live in the house for two years? It’s my understanding that if it’s your principal residence _for two out of the last five years_ that you’re exempt from capital gains taxes up to a certain amount. Otherwise, it isn’t a home, it’s an investment, and you have to pay.

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**Author:** ![samclem](https://avatars.discourse-cdn.com/v4/letter/s/a9a28c/32.png) [@samclem](https://boards.straightdope.com/u/samclem)\
**Post date:** [April 9, 2006, 4:06am UTC](https://boards.straightdope.com/t/question-about-taxes-on-vacation-rental-home-sale/351909/3 "2006-04-09T04:06:59Z")

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> [@kunilou](#):
>
> I Am Not - well, I’m not anything, but I am a homeowner.
> 
> When did they live in the house for two years? It’s my understanding that if it’s your principal residence _for two out of the last five years_ that you’re exempt from capital gains taxes up to a certain amount. Otherwise, it isn’t a home, it’s an investment, and you have to pay.

Their idea, before I disabused them, was to live in the condo for two years, then sell it with no tax owed, as it would be their pricipal residence for that period. But it would seem that the fact that it was purchased as a rental, written off over 20 years of depreciated value, etc. would trump their living in it and claiming the 500K joint Fed exemption for a primary residence.