A taxpayer who sells a principal residence that has been used (or is being used)as a rental property since 2005 will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.

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According to the IRS rules, a taxpayer who sells a principal residence that has been used as a rental property since 2005 will not be allowed to exclude the portion of the gain attributable to depreciation, even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount. This rule applies to sales after May 6, 1997, regardless of how long the homeowner lived in the property as their primary residence.

A Taxpayer Who Sells a Principal Residence That Has Been