The years before you moved in still count.

The facts, in one place.

Six quotable sentences on selling a home that was once a rental.

1. The home-sale exclusion ($250,000, $500,000 joint) is for a principal residence owned and used two of the last five years. A home rented out before you moved in is partly outside it: the share of the gain matching the rental years after 2008 is not excludable (§ 121(b)(5)).
2. The order matters. Renting BEFORE moving in creates nonqualified use; renting AFTER moving out, within the five-year window, does not (§ 121(b)(5)(C)(ii)). A house you lived in and then rented for two years before selling keeps its full exclusion.
3. Depreciation taken while the home was rented is never excludable and is taxed at up to 25 percent when the home is sold (§ 121(d)(6); § 1(h)(6)), whether or not it was actually claimed on the returns.
4. Example: a home bought for $400,000, rented four of ten years before the owners moved in, with $40,000 of depreciation, sold for $900,000 on a joint return: 40% of the $500,000 gain ($200,000) is taxable, the depreciation is taxed at 25 percent, and the rest is excluded: $40,000 of tax, against $10,000 had it never been rented.
5. The allocation is by time owned, not by value: a year of rental in a flat market costs the same share as a year in a rising one.
6. A rental converted to a residence is common for people who move into a second home in retirement; the two-year use test starts when they move in, and the years before it count against them forever.

Which years count against the exclusion.

The rental years that reduce the exclusion, and the ones that do not.

How the rental years are counted.

The home-sale exclusion assumes a home that was a residence. A home that was rented out before its owners moved in was, for those years, an investment, and the law carves them out: the gain is allocated between the years of nonqualified use and the rest by time, and the nonqualified share is taxed as an ordinary long-term gain. The carve-out runs one way. Renting the home after moving out, within the five-year window before the sale, is not nonqualified use, so a home lived in and then rented for two years keeps its full exclusion.

Depreciation is a second, separate carve-out. Whatever was taken while the home was rented, whether or not it was actually claimed, is never excluded and is taxed at up to 25 percent when the home is sold. The calculator splits the gain three ways, excluded, taxed at the gains rate, and taxed as depreciation, and shows the bill against a home that had never been rented.

Methodology.

1. Inputs. The net sale price, the cost basis, the depreciation taken, the years owned, the years rented before moving in, filing status, and the gains rate.
2. The gain. Sale price less the basis reduced by depreciation. The depreciation portion is set aside first (§ 121(d)(6)).
3. The allocation. The remaining gain times the rental years before moving in over the years owned is nonqualified and taxable (§ 121(b)(5)(A), (B)); the rest is eligible for the exclusion, up to the limit for the status.
4. The tax. The nonqualified gain and any eligible gain over the exclusion at the gains rate; the depreciation at 25 percent (§ 1(h)(6)); and the same sale with no rental years, for comparison.
5. Validation. A ten-year ownership with four rental years and depreciation, pinned by hand, and a no-rental case. A transcription error fails the build.
6. Not modeled. Whole years only, rental years before 2009 (which do not count), a home office or partial rental, a sale at a loss, the surtax, state tax, and a failure of the two-of-five test. Educational, not advice.

Sources.

1. 1. United States Code (Cornell LII), 26 U.S.C. § 121 — Exclusion of gain from sale of principal residence. The two-of-five-year ownership and use test (a); the $250,000 limit (b)(1) and $500,000 on a joint return (b)(2); the surviving spouse's $500,000 for a sale within two years of the death when the joint conditions were met at death (b)(4); the reduced exclusion for a change in employment, health, or unforeseen circumstances, prorated over two years (c); and the tacking of a deceased spouse's ownership and use (d)(2). Retrieved September 6, 2026; verified September 6, 2026.
2. 2. United States Code (Cornell LII), 26 U.S.C. § 121(b)(5) and (d)(6); § 1(h)(6) — Nonqualified use; depreciation; unrecaptured section 1250 gain. That gain allocated to periods of nonqualified use after 2008 is not excluded, allocated by the ratio of those periods to the ownership period (b)(5)(A), (B); that use after the last use as a residence inside the five-year window is not nonqualified (b)(5)(C)(ii)(I); that gain up to the depreciation taken after May 6, 1997 is never excluded (d)(6); and that such depreciation gain is taxed at up to 25 percent (§ 1(h)(6)). Retrieved September 6, 2026; verified September 6, 2026.
3. 3. Internal Revenue Service, Publication 523, Selling Your Home. The Service's worked statement of the eligibility test, the joint and surviving-spouse amounts, the partial exclusion, and the basis of a home received from a spouse or held jointly at death. Retrieved September 6, 2026; verified September 6, 2026.

Revision history.

The record's history.

September 6, 2026

Added the nonqualified-use and depreciation rules for the rented-home sale tool.

September 6, 2026

First release: the exclusion available to a surviving spouse by time since the death, stacked on the stepped-up basis, with the partial exclusion for an early move.

Canonical address: https://consideratecapital.com/tools/home-sale-exclusion-after-renting