If I lived in a home owned by my parents for 19 years before it being gifted to me, must I live in it for two years under my ownership to qualify for a capital gains exclusion if I sell it?

by Dominic T. Cutuli, CPA | Oct 16, 2018

My wife and I have lived in a house owned by my parents for the past 19 years. About a year ago, they gave us the home. We are thinking of selling the home and moving. Since the home was family gifted, do we have to have lived in it for two years since it was signed over (to take the capital gains write-off of $500,000) or does the fact that we have lived there 19 years count?

To qualify for the maximum capital gain exclusion on the sale of a primary residence, a taxpayer must satisfy both the ownership and residence test. 

In your specific case, if you and your wife have not owned the home for at least two of the past five years, you would not pass the ownership test. However, you may qualify for a partial capital gain exclusion under your circumstances. IRS Publication 523 details how to calculate the partial capital gain exclusion.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Dominic T. Cutuli, CPA, is a principal with H2R CPA in Pittsburgh.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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