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Publication 17

Business Use or
Rental of Home(p112)

You may be able to exclude gain from the sale of a home you have used for business or to produce rental income. But you must meet the ownership and use tests.

Periods of nonqualified use.(p112)

In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. Nonqualified use is any period in 2009 or later during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions.


A period of nonqualified use does not include:
  1. Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home;
  2. Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty:
    1. As a member of the uniformed services;
    2. As a member of the Foreign Service of the United States; or
    3. As an employee of the intelligence community; and
  3. Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS.
The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion.


To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:
 Total nonqualified use during the period of ownership in 2009 or later
 Total period of ownership 
This calculation can be found in Worksheet 2, line 10, in Publication 523.

Example 1.(p112)

On May 26, 2006, Amy, who is unmarried for all years in this example, bought a house. She moved in on that date and lived in it until May 31, 2008, when she moved out of the house and put it up for rent. The house was rented from June 1, 2008, to March 31, 2010. Amy claimed depreciation deductions in 2008 through 2010 totaling $10,000. Amy moved back into the house on April 1, 2010, and lived there until she sold it on January 31, 2012, for a gain of $200,000. During the 5-year period ending on the date of the sale (January 31, 2007–January 31, 2012), Amy owned and lived in the house for more than 2 years as shown in the following table.
Five Year
Used as
Used as
1/31/07 –
16 months   
6/1/08 –
  22 months
4/1/10 –
22 months  
 38 months22 months
During the period Amy owned the house (2,076 days), her period of nonqualified use was 455 days. Amy divides 455 by 2,076 and obtains a decimal (rounded to at least three decimal places) of 0.219. To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0.219. Because the gain attributable to periods of nonqualified use is $41,610, Amy can exclude $148,390 of her gain.

Example 2.(p112)

William owned and used a house as his main home from 2006 through 2009. On January 1, 2010, he moved to another state. He rented his house from that date until April 30, 2012, when he sold it. During the 5-year period ending on the date of sale (May 1, 2007–April 30, 2012), William owned and lived in the house for more than 2 years. He must report the sale on Form 4797 because it was rental property at the time of sale. Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. Because he met the ownership and use tests, he can exclude gain up to $250,000. However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next.

Depreciation after May 6, 1997.(p112)

If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. See Publication 544 for more information.

Property used partly for business or rental.(p112)

If you used property partly as a home and partly for business or to produce rental income, see Publication 523.