I understand, if I convert a rental property into a primary residence for two years, I can save a lot on taxes at time of sale. What evidence does IRS require to substantiate this property has been converted to primary residence for a two year period?
ANSWER BY MARGARET CROSS-BELIVEAU:
The IRS uses a two prong test for the $250,000 capital gain exclusion. First, you must have owned the property for five years. Second, you must have used the property as your principal residence for 2 of those years. If you claimed an exclusion from a different sale of a home in the two years prior, generally you will not be eligible for the exclusion. The exemption is for each owner of the property. So, if you are married, both of you can claim the exemption, making it $500,000 exclusion.
You prove residence to the IRS as you prove it to any other entity….voter registration, address listed on your 1040, address listed on your bills, drivers license.
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Legal Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on since each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. A lawyer experienced in the subject area and licensed to practice in the jurisdiction should be consulted for legal advice.
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The tax attorneys at the Beliveau Law Group provide legal services for taxation. The law firm has offices and attorneys in Naples, Florida; Waltham, Massachusetts; and Salem, New Hampshire.