Reduced Maximum Home-Sale Gain Exclusion in Certain Situations
The general rule is that homeowners
may exclude from their gross income up to $250,000 ($500,00 for married filing
jointly) of the gain from the sale of their home. This general rule applies to
homeowners that have owned and used their home for two out of the last five
years.
Homeowners may still exclude a
portion of the gain from the sale of their home if the primary reason for the
sale of the home is one of the following: (1) a change in the place of
employment; (2) health reasons; or (3) unforeseen circumstances. These reasons,
and the requirements for each, are discussed more fully below.
Change in the Place of
Employment
If you or your spouse, a co-owner
of the residence, or a person whose main home is the same as yours, is changing
his or her place of employment, then you may be permitted to exclude a portion
of the gain from the sale of your home from your gross income. A change in the
place of employment can be starting work with a new employer, starting
self-employment, continuing to work for your current employer in a new location,
or continuing self-employment in a new location. The change in place of
employment must have occurred while you owned and used the property as your
personal residence, and the new place of employment should be at least 50 miles
from your home than the previous of employment (or from your home if the
individual was unemployed).
Health Reasons
You may be permitted to exclude a
portion of the gain from the sale of your home from your gross income, if the
primary reason for selling your principal residence is the health of one of the
following individuals:
•
Yourself;
•
Your spouse;
•
A co-owner of the residence;
•
A person whose main home is the same as yours;
•
A parent, grandparent, stepmother or stepfather;
•
A child, grandchild, stepchild or adopted child;
•
A brother, sister, stepbrother, stepsister, half brother or half sister;
•
A mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law or
daughter-in-law;
•
An uncle, aunt, nephew or niece.
You are considered to be selling
your home for health reasons if: (1) you are selling your home because of the
necessity to obtain, provide or facilitate the diagnosis, cure, mitigation, or
treatment of disease, illness, or injury of one of the individuals listed above,
or to obtain or provide medical or personal care for one of the individuals
listed above that is suffering from a disease, illness or injury; and (2) a
doctor recommends a change of residence for reasons of health. Selling your home
because it is beneficial to a person's general health or well-being is not
considered to be selling your home for health reasons.
Unforeseen
Circumstances
You may be permitted to exclude a
portion of the gain from the sale of your home from your gross income, if the
primary reason for selling your principal residence is one of the following
unforeseen circumstances:
•
An involuntary conversion from your home.
•
Natural or man-made disasters or acts of war or terrorism resulting in a
casualty to your home, whether or not your loss is deductible.
•
In the case of yourself, your spouse, a co-owner of the residence, or a person
whose main home is the same as yours, one of the following occurs: (1) death;
(2) unemployment (if eligible for unemployment compensation); (3) a change in
employment or self-employment status that results in the inability to pay basic
living expenses (such expenses are discussed more fully below); (4) divorce or
legal separation; or (5) multiple births resulting from the same pregnancy.
•
An event the IRS determines to be an unforeseen circumstance in its published
guidance. Previous events the IRS has determined to be unforeseen circumstances
include the September 11, 2001 terrorist attacks.
Reasonable basic living expenses,
as mentioned above, include amounts spent for food and clothing, housing and
related expenses, medical expenses, transportation expenses, tax payments, court
ordered payments, and expenses reasonably necessary to produce income.
If the primary reason for selling
your personal residence is any of the reasons listed above, you may exclude from
your gross income a portion of the gain from the sale of your home. If the
primary reason for selling your personal residence is not listed above, you may
still qualify for the home-sale gain exclusion. Certain factors, listed below,
will be considered in determining whether you may exclude from your gross income
a portion of the gain from the sale of your home:
•
Your financial inability to maintain your residence materially changed.
•
The suitability of your property as a residence materially changed.
•
The circumstances causing the sale were not reasonably foreseeable when you
began using the property as your principal residence.
•
During the time you owned the property, you used it as your residence.
•
The circumstances causing the sale occurred during the time that you owned and
used the property as your personal residence.
•
The sale and the circumstances causing the sale were close in time.