Speed_Racer

I know that the IRS requires you to live in a house for 2 out of the last 5 years in order to have a tax free gain on the proceeds of a house sale. What proof do they need that you were there for 2 years?

Background story: my inlaws have a rental house they now want to sell. I told them about the IRS rule for not getting taxed on the gain and they are now planning to do change of address forms, DMV, etc. to the rental house address. Is that really necessary? Or is changing the address on the utilities bill enough?

They are talking to a tax accountant, but I was just curious if anyone knew here.

doopstr

They better watch out they don't get screwed.

I'm sure they filed previous 1040s that stated what their "primary" residence was. You need to do that to claim the tax deduction on mortgage/property taxes.

NSXNEXT

iTrader: (2)

It'll get reported when they close on the sale. The address of the home will be compared to the last 2 years of tax returns.

So the short answer is they will get caught. It's too easy to check up on it.

BigPimp

Good luck, let us know how that works out for them.

Speed_Racer

Thanks guys for the advise. They weren't trying to cheat the IRS, but wanted to know what they check to determine residency. It makes sense that they check the tax returns.

They decided to sell now and just eat the tax.

soopa

Havin worked for the tax department, and having had full access to the digital tax archives, I feel confident in saying there's nothing the IRS does not know about you

It's ridiculous how much information they keep on you and how in-depth it is.

95gt

well actually they were trying to cheat the IRS (selling a rental house but trying to make it look like they lived there)

but sounds like they are keeping it on the up and up.