Partial gain exclusion for personal residence converted to rental

[David]

TP owned his house since June 2006 and used it as a personal residence until he converted it to a rental in December 2010. He sold in November 2014.

Personal residence use was roughly 1 year out of the last 5 years. Does he get the partial exclusion since he lived in the rental prior to converting it to a rental? Or does he not get any partial exclusion and must have lived in the house 2 years out of the last 5 years?

Thanks.

[jklcpa]

From the instructions to Schedule D -

 

Reduced exclusion.
Even if you do not meet one or both of the above two tests, you still can claim an exclusion if you sold or exchanged the home because of a change in place of employment, health, or certain unforeseen circumstances. In this case, the maximum amount of gain you can exclude is reduced.

For more information, see Pub. 523.

[David]

I thought if you first used a home as a personal residence and later converted it to rental property, you are able to prorate and get a partial exclusion.

It must be the long hours getting to me.

Thanks.

[Terry D EA]

Based on Judy's response. if your client does not meet any of those criteria than no exclusion. I may be wrong but I think an exclusion may apply if sold in the first year it was converted to rental property. Too tired to look it up and someone please correct me if I'm wrong.

[Hahn1040]

they have to meet the two out of five years rule (own and live in it)

so if they have been gone since 2010, they are past that... unless active duty military for which the two out of five can be suspended for up to ten years

 

still even if they did meet the two out of five, they cannot exclude the part of the gain based on the depreciation taken

in many cases, the gain is not more than the depreciation that has to be recaptured and thus there is nothing to exclude

 

and then also have to consider if there is any gain allocated to "non-qualified use" that cannot be excluded