The “Move Back for 2 Years = Full $500k” Myth (and What Really Happens)

Let's bust the rumor I hear all the time: "If you move back into your old home for two years, you get the full $500,000 home‑sale exclusion."

Truth: Two years gets you eligible for the exclusion, but the IRS can still prorate your gain because of the years you didn’t live there after 2008. That slice is called non‑qualified use. Here's the easy way to think about it.

1) The Simple Rule: 2 of the Last 5 Years

To qualify at all, you (and your spouse, if filing jointly) must have lived in the home for 24 months during the 5 years preceding the sale. Those 24 months don’t have to be in a row.

But: If you rented it out or otherwise didn’t live there after 2008, the IRS may tax part of the gain.

2) How the IRS Prorates When You Move Back

Step A: Start with your total gain

Sale price − Adjusted basis (what you paid + capital improvements) − Selling costs = Total gain

Step B: Take out depreciation If it were a rental, any depreciation you took (or could have taken) is always taxable later. Please consider this its own category.

Step C: Prorate the rest using non‑qualified use

• Figure out the years (after 2008) you didn't live there before your final move‑back.
• Divide those years by all the years you owned the home.
• That fraction of the remaining gain is taxable; the rest can be excluded (up to $250k single / $500k married).

Quick Example (nice round numbers)

• Owned: 20 years total
• Rented (post‑2008) 8 years, then moved back 2 years and sold
• Remaining gain after depreciation: $400,000

Non‑qualified fraction = 8⁄20 = 40%

Taxable slice = 40% × $400,000 = $160,000

Excludable slice (subject to $250k/$500k cap) = $240,000

Bottom line: Moving back helps, but it doesn’t erase earlier rental years.

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3) The "2 of 5" Visual

• 2 years lived in (anytime inside the last 5 years)
• Up to $500k excluded if married filing jointly (up to $250k if single)
• Proration for non‑qualified use after 2008
• Depreciation recapture from rental years is always taxable

4) Selling and Buying Something Else? 1031 Basics (Plain English)

A 1031 exchange lets you sell an investment/rental property and buy another investment/rental property without paying tax today. You use a Qualified Intermediary and follow strict deadlines (identify in 45 days, close in 180 days).

You can't 1031 your primary home. But if the property is truly an investment at the time of sale, 1031 can defer the capital gain and depreciation recapture.

Popular Strategy You Asked About: "1031 Into the Dream Home"

1. Use a 1031 to buy the home you want as an investment (rent it at fair market rent; no personal use).
2. Hold it as a real investment for a meaningful period (many pros say ~2+ years; there's no official bright‑line).
3. Then move in and make it your primary home.
4. If you pass away still owning it, your heirs get a step‑up in basis to fair market value on the date of death, which can wipe out the deferred gain. (People call this "swap till you drop.")

Heads‑up details:

• If you later sell after moving in, the home‑sale exclusion generally can't be used until you've owned it at least 5 years after the 1031 acquisition.
• Keep leases, rent comps, and records to prove it was a real investment before you moved in.

5) "Can I Still Get the Full $500k?" - The Helpful Exceptions

There are two different ideas here:

1. A) Exceptions that remove time from the "non‑qualified use" bucket

These help your proration, even if you moved back later:

• Time after your last day of living in the home (within the final 5‑year window) - if you move out and sell within ~3 years, those months typically aren't non‑qualified use.
• Up to 2 years of temporary absence due to job change, health, or unforeseen circumstances.
• Certain Military/Foreign Service/Intelligence duty (special timing rules; up to 10 years).
• You moved and rented the property because of a job relocation more than 50 miles from your home.  You would have to come back, live there for 2 years, and then you can sell with full exemption.

Final Word

This is a simplified (yet complicated) overview for planning. Every deal has moving parts. Before you list, loop me in, and I'll help coordinate with your client’s CPA so nobody gets surprised at closing.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

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📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

Interest rates are better today after a slightly better Monday! The streak is alive! Go Dodgers!

Loan Programs

• We do loans on Non-warrantable condos!
• We offer 12-day escrows for pre-approved buyers, including conventional FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the 5s.
• Conventional loans up to $806,500 are in the high 5’s and low 6s.
• High-balance loans from $806,501 to $1,209,750 are also in the 6s.
• Jumbo loans above $1,209,750 are in the 6’s.
• ARMS in the 5’s and some in the 6’s
• Bank statement loans are available with 10% down again, with larger down payments in the 6’s++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
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Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   

NONE

**Bad News for Condos***     

Brookside Walk – Naughty once again! As they got rid of their 5% Maximum deductible on Insurance.

Camelot  – 2396 Pleasant Way, Thousand Oaks – Insurance does not meet the requirements in the selling guide

CONDO HELP!!!

If you have a listing or a buyer interested in a specific condo and are unsure whether it is warrantable or Non-warrantable, please call me, and we can look up Fannie’s list in real-time. I have already done that on three condos today, and my list was accurate on all 3. We don’t know when something has changed, and it would be impossible to track everything on a day-by-day basis, but we don’t mind looking up a few items each day.

The full state of California’s naughty list has been added to: MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow!