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Real Estate

§121 Non-Qualified Use Allocation

Pre-2009 rental period doesn't reduce your §121 exclusion.

Overview

The §121 non-qualified use rule (limits exclusion when property was rented) applies ONLY to rental periods after Jan 1, 2009. If you rented a property before then, that period is fully excluded from the pro-rata reduction. Owners of long-held homes-then-rentals can capture much larger §121 exclusions than commonly assumed.

Best fit
Owners of pre-2009 rentalsLong-tenured property holdersBoomer downsizers
Estimated impact
Recover $50–200k of §121 exclusion lost under naive math

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