• Wander CPA

PARTIAL Exclusion from Sale of Home - DON'T MISS THIS!

There is a $250K ($500K MFJ) exclusion if a person lived in their home for 2 years out of the previous 5 years. However, if the 2-year mark was not met, there is a still a possibility to exclude a significant amount of the gain from sale. The following outlines how this is possible:

IRS Publication 523 states that you can exclude a part of the gain if the “main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.”

Work-related move:

1. You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location.

2. You had no previous work location and you began a new job at least 50 miles from the home.

3. Either of the above is true of your spouse, a co-owner, or anyone else for whom the home was his or her residence

Health-related move:

1. You moved to obtain, provide, or facilitate diagnosis, cure, mitigation, or treatment of disease, illness, or injury for yourself or a family member.

2. You moved to obtain or provide medical or personal care for a family member suffering from a disease, illness, or injury. Family includes your:

a. Parent, grandparent, stepmother, stepfather

b. Child (including adopted child, eligible foster child, and stepchild), grandchild

c. Brother, sister, stepbrother, stepsister, half-brother, half-sister

d. Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law

e. Uncle, aunt, nephew, or niece

3. A doctor recommended a change in residence for you because you were experiencing a health problem

4. The above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

Unforeseeable Events:

1. Your home was destroyed or condemned

2. Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn’t matter whether the loss is deductible on your tax return.)

3. You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:

a. Died, became divorced or legally separated

b. Gave birth to two or more children from the same pregnancy

c. Became eligible for unemployment compensation

d. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income)

Other Facts and Circumstances Even if your situation does NOT match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are:

1. The situation causing the sale arose during the time you owned and used your property as your residence.

2. You sold your home not long after the situation arose.

3. You couldn’t have reasonably anticipated the situation when you bought the home.

4. You began to experience significant financial difficulty maintaining the home.

5. The home became significantly less suitable as a main home for you and your family for a specific reason

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