Retaining homeowner capital gain exclusion


S

Salmon Egg

I know that homeowners can get a significant exclusion of capital gain
arising from sale of the home. What happens when ownership is retained
but owners have to move out because of medical or psychological
necessity?

Almost two years ago, I moved out of our home. Although not legally
blind, my vision prevents me from driving and taking care of myself. I
moved into a independent living facility that provides shelter, food,
and modest transportation.

How will that affect my capital gain exclusion upon home sale? Is that
treated in any way other than as if I moved out for non-medical reasons?

It now appears that my wife may also have to move out for similar
reasons. If both of us live too long, does that mean a loss of the
capital gain exemption upon ultimate sale?

--

Sam

Conservatives are against Darwinism but for natural selection.
Liberals are for Darwinism but totally against any selection.
 
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S

Stuart Bronstein

Salmon Egg said:
I know that homeowners can get a significant exclusion of
capital gain arising from sale of the home. What happens when
ownership is retained but owners have to move out because of
medical or psychological necessity?
The basic rule is that you get the exemption if you have lived there
two years out of the last five. You can count up to two years of
not living there if you were away temporarily for health or
employment issues.
Almost two years ago, I moved out of our home. Although not
legally blind, my vision prevents me from driving and taking
care of myself. I moved into a independent living facility that
provides shelter, food, and modest transportation.
If you lived there for two of the prior three years before you
moved, you won't have a problem in any case. If you establish that
you had to move for a medical reason, the two years should count as
if you were still living there during that time.
How will that affect my capital gain exclusion upon home sale?
Is that treated in any way other than as if I moved out for
non-medical reasons?
Assuming you sell the house within the next year, you don't even
need to worry about the exception - you get the exclusion. If it
takes longer, you may still get the exclusion.
It now appears that my wife may also have to move out for
similar reasons. If both of us live too long, does that mean a
loss of the capital gain exemption upon ultimate sale?
If you wait too long to sell it, yes, you could ultimately lose the
exclusion.
 
A

Alan

The basic rule is that you get the exemption if you have lived there
two years out of the last five. You can count up to two years of
not living there if you were away temporarily for health or
employment issues.


If you lived there for two of the prior three years before you
moved, you won't have a problem in any case. If you establish that
you had to move for a medical reason, the two years should count as
if you were still living there during that time.


Assuming you sell the house within the next year, you don't even
need to worry about the exception - you get the exclusion. If it
takes longer, you may still get the exclusion.


If you wait too long to sell it, yes, you could ultimately lose the
exclusion.
Stuart: You seem to have created a new rule or misinterpreted the rule.
You get the full exclusion if you meet the two years of ownership AND
the two years of use as your main home rules. You can count short
temporary absences for vacation as use... even if you rent the home for
the short period. If you move out for health reasons, then you can not
count those days of absence. If you fail the two year of use rule
because of health, or a change in employment or for an unforseen
circumstance, you may be eligible for a REDUCED exclusion.

There is an exception to the above for individuals who are mentally or
physically incapable of taking care of themselves and can show use as
their main home for at least one year out of five. The law allows you to
count days that you live in a facility that is state licensed to provide
the care required. Typically, this is an assisted living or nursing
home. Typically, it is not an independent living facility. That's not to
say that there may be independent living facilities that are providing
some level of care that can not be met at your own home. Where I live,
the independent care facilities are part of a larger complex that
includes assisted living and sometimes skilled nursing. The tenants in
the independent living facility are there because they are 1. able to
care for themselves and 2. want access to the assisted living and/or
nursing facility should their health change and they can no longer care
for themselves.
 
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You receive a $250,000 maximun exclusion on the capital gain, as long as you lived in the house 2 out of the past 5 years. So I am pretty sure you will be able to exclude the entire gain.
 

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