Q: I purchased a home in July 2002, lived in it until August 2004, then rented it for 16 months. I am confused about the tax situation. Do I have to wait 5 full years before I sell and take advantage of the capital gains exemption?
A: As long as you have occupied the house as your primary residence for at least 2 of the past five years, you may sell and keep up to $250,000 in profits tax free, or up to $500,000 if you’re married.
However, if you took any deductions for the property while it was rented, you’ll need to recapture those. Please talk to your tax advisor to make sure there are no other issues you need to consider.