Sell or rent my house? The 2-of-5-year capital-gains clock in Washington

Three years, counted from the day you stop living there, if you had lived there for at least the 2 years before that. The arithmetic: the look-back is 5 years ending on the closing date, you need 2 of them as a resident, so up to 3 of them can be rental years. Move out on 1 July 2026 and the last closing date that still passes the use test is 30 June 2029.

The date that matters is the closing date of the sale, not the listing date or the day the tenant leaves. On the Eastside a well-prepared house lists, goes pending and closes in roughly 6 to 10 weeks when the market is normal, and the tenancy has to end first (Washington's just-cause rules require at least 90 days' notice to end a periodic tenancy to sell a single-family home, RCW 59.18.650(2)(e); fixed terms end on their date). Work backwards from the clock: tenant notice no later than month 32, listing by month 33, closing inside month 36.

The IRS carves out two kinds of exceptions (Publication 523): the 5-year period is suspended for up to 10 years for qualified official extended duty (uniformed services, Foreign Service, intelligence community), and a reduced exclusion is available when a sale before the 2-year mark is caused by a change in employment, health or an unforeseen circumstance. Neither extends the window for an ordinary landlord who simply kept renting.

The moment the house becomes a rental, the IRS treats the building as a depreciable asset over 27.5 years (Publication 527, Table 2-1). Your basis for depreciation is the lesser of your adjusted basis or the home's fair market value on the day you convert it, and land is never depreciated. Depreciation is allowed or allowable, which means recapture applies whether or not you claimed it, so claim it.

When you sell, “you can't exclude the part of your gain equal to any depreciation allowed or allowable” for periods after May 6, 1997 (Publication 523). That slice is unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25% (IRS Topic 409, tax year 2025 rates). The rest of the gain, after the exclusion, is long-term capital gain at the 0%, 15% or 20% bracket for your income.

No. Washington's capital gains tax, enacted in 2021, is a 7% tax on the sale or exchange of long-term capital assets above a standard deduction ($278,000 for 2025, adjusted for inflation each year), and the Department of Revenue lists real estate among the exempt assets (Washington DOR, Capital gains tax, read 2026-10-15). Selling a Bellevue house, whether it was your home or your rental, is outside the state tax. Interests in an entity that owns real estate are a different question for your CPA.

Washington has no state income tax, so the federal rules above are the whole tax picture for most owners, with the real estate excise tax (paid by the seller at closing on the sale price) as the state's share.

Put three numbers side by side: the net proceeds from a sale today (we price it from closed Bellevue sales, not an automated estimate), the net rent after vacancy, maintenance, management and taxes for the next 36 months, and the tax cost of selling in month 36 versus month 1. Renting wins when the mortgage is cheap, the home cash-flows at market rent and you want the option to return. Selling wins when the equity is large, the rent yield is thin, or you do not want to run a rental from another city.

Either way the first step is the same: the current rent your house commands, from live Bellevue lease data, next to its sale value. Start with Bellevue property management for the rent side and sell my house in Bellevue for the sale side; the same team answers both.