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Below is the most direct answer. However, as it doesn't bring the result many desire...I suggest that you find if your situation can utilize Section 1031 - known as "Like Kind Exchange" or LKE - which defers the gain on the investment until another sale. It is a complex and specialized area of taxation that you should go over with someone adept in that field. A web search using 1031 exchange - should provide a number of companies that specialize in it. As a start - you really would only want/be able to use it - if the money from this property is going to be used in another investment of some type (other than stock/bond/etc).
You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time. Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)
Gain If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
  • If you can exclude all of the gain, you do not need to report the sale on your tax return
  • If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)

Business Use or Rental of Home You may be able to exclude your gain from the sale of a home that you have used for business or to produce rental income. But you must meet the ownership and use tests. Example: On May 30, 1997, Amy bought a house. She moved in on that date and lived in it until May 31, 1999, when she moved out of the house and put it up for rent. The house was rented from June 1, 1999, to March 31, 2001. Amy moved back into the house on April 1, 2001, and lived there until she sold it on January 31, 2003. During the 5-year period ending on the date of the sale (February 1, 1998 - January 31, 2003), Amy owned and lived in the house for more than 2 years as shown in the table below. 2/1/98-5/31/99 16 months
6/1/99-3/31/01
22 months 4/1/01-1/31/03 22 months
38 months 22 months Amy can exclude gain up to $250,000. However, she cannot exclude the part of the gain equal to the depreciation she claimed for renting the house.
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Q: Lived in your house 2 years then rented for 3 can you get the owner occupied capital gains tax break?
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