There was, as you know, a revision to the tax code that allows us to exclude from taxation up to $250,000 in gains from taxation ($500,000 if we're married taxpayers filing jointly) from the sale of our personal residence. The rules surrounding this exclusion are, happily, very liberal... which leads to a question many clients have asked:

Is it possible to buy and move into a new home, but hold on to the old home for a period of time, renting it out−and then sell it, still taking advantage of the tax exclusion?

The answer is yes. In fact, we can rent our prior residence out for up to three years before selling it (though it's absolutely crucial that the sale closes before the three years are up). The rules are simple. You have to have lived in the residence a cumulative total of two of the five years prior to the home's sale.

Obviously, you won't want to flirt with the possibility that a sale of the home won't close until after the three years is over, and you'll want the guidance of your tax advisor in utilizing this aspect of the tax rules. The point here, though, is that you can rent out your residence if it proves important or profitable to do so. Just don't give up that profit−and more−by losing the right to exclude all or most of your gains from taxation. For assistance, call Beth at (425) 450-5208 and visit her website at www.bethbillington.com.

Beth Billington is a Realtor® with Coldwell Banker Bain in Bellevue, WA.