When you sell your primary residence, and meet certain requirements, you may be able to exclude all or a portion of your capital gain in the property from taxes. In this article, I am going to cover the $250,000 capital gains exclusion for single filers, and the $500,000 capital gains exclusion for married couples filing joint. However, as financial planners, we have also run into some unique situations where clients:
Live in an owner-occupied duplex and rent one half of the property
Have a home office and have been taking depreciation as a tax benefit
Moving into a rental property and made it their primary residence
For homeowners that fall into one of the unique categories, they may face an unexpected tax consequence when the go to sell their property. They may wrongly assume the large capital gains exclusion associated with selling a primary residence will cover gains and depreciation that was taken on the rental portion of the property.