Sale of Home before 2 years - Prorated Tax Exclusion


L

Lee

I'd just like to confirm the following and make sure that my
understanding is correct.

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.

Based on the below information from IRS web site, it seems
that I can get a "pro-rated" exclusion on the sale of my
home, even though I've lived in it for less than 2 years.

For example, let's say that the "Gain" on my home (a condo)
is $150,000 and I am Married. If I sell the home after 1
year, then my $150,000 gain should be tax free.


From: http://www.irs.gov/newsroom/article/0,,id=105042,00.html

<<For qualifying sellers, the maximum exclusion amount of $250,000
($500,000 for a married couple filing jointly) is limited to the
percentage of the two years that the person fulfilled the
requirements. Thus, a qualifying seller who owns and occupies a home
for one year (half of two years) – and who has not excluded gain on
another home in that time – may exclude half the regular maximum
amount, or up to $125,000 of gain ($250,000 for most joint returns).
The proportion may be figured in days or months.>>

Thanks for your feedback on whether my understanding is correct.

Regards,
Lee
 
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A

Al Bundy

I'd just like to confirm the following and make sure that my
understanding is correct.

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.

Based on the below information from IRS web site, it seems
that I can get a "pro-rated" exclusion on the sale of my
home, even though I've lived in it for less than 2 years.

For example, let's say that the "Gain" on my home (a condo)
is $150,000 and I am Married. If I sell the home after 1
year, then my $150,000 gain should be tax free.

From: http://www.irs.gov/newsroom/article/0,,id=105042,00.html

($500,000 for a married couple filing jointly) is limited to the
percentage of the two years that the person fulfilled the
requirements. Thus, a qualifying seller who owns and occupies a home
for one year (half of two years) – and who has not excluded gain on
another home in that time – may exclude half the regular maximum
amount, or up to $125,000 of gain ($250,000 for most joint returns).
The proportion may be figured in days or months.>>
Doesn't what you quoted apply to the "unforeseen
circumstances" stated right above that?

I posed a similar question here in like Feb 04 where a guy
sold his place in 22 months. He had no unforeseen
circumstances excuse. Was told in this group he was SOL.
 
R

Rich Carreiro

I'd just like to confirm the following and make sure that my
understanding is correct.

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.

Based on the below information from IRS web site, it seems
that I can get a "pro-rated" exclusion on the sale of my
home, even though I've lived in it for less than 2 years.
No, that's not correct. Unless you're selling for
an "approved" reason, pro-ration is not allowed and
you have to pay tax on the entire gain. "Just because"
is not a good enough reason.

So, why are you selling?
 
E

Ed Zollars, CPA

Lee said:
I'd just like to confirm the following and make sure that my
understanding is correct.
You have to first qualify to meet one of the exceptions to
be able to prorate the exclusion. The general rule is that
you cannot claim any exemption if you haven't both owned the
property and used it as your principal residence for two
years out of the five years preceding the date of sale.

That is what is a meant by a "qualifying seller" in the
paragraph you have quoted, which is an attempt to explain
IRC Section 121. The key question is going to be *why* you
are selling the home (change of employment, health reasons,
divorce, etc.). Some reasons qualify to get relief, while
others don't.
 
H

Helen P. OPlanick EA

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.
Why are you selling? We need to know so that we can give
you a proper answer.

Helen, EA in PA
Member of The Tax Gang
Director, National Assoication of Enrolled Agents
Immediate Past President, PA Society of Enrolled Agents
 
W

Wcm7315

<For qualifying sellers, the maximum exclusion amount of $250,000
($500,000 for a married couple filing jointly) is limited to the
percentage of the two years that the person fulfilled the
requirements.
The key here is "qualifying seller" Lee. Unless you qualify
to prorate the exclusion, you cannot do so. Take a look at
what the requirements are. Will
 
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G

Greg Broiles

I'd just like to confirm the following and make sure that my
understanding is correct.

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.

Based on the below information from IRS web site, it seems
that I can get a "pro-rated" exclusion on the sale of my
home, even though I've lived in it for less than 2 years.
To use the prorated exclusion, the sale of the home must be
due to:

1. Job relocation
2. Health reasons
3. Unforseen circumstances (including, among other things,
death in the family, unemployment, divorce, multiple
births from the same pregnancy)

The IRS has issued regulations discussing in more detail how
each of the above is interpreted. The regs are at 26 CFR
1.121-3T. I also seem to remember a recent PLR or Tax Court
case approving the use of the reduced exclusion where a
household member was released from prison but was unable to
live in the home due because it was too close to a school
and the terms of his supervised release required him to stay
away from schools.
 
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P

Phil Marti

I'd just like to confirm the following and make sure that my
understanding is correct.

I have a primary residence that I've lived in for 1 year.
I plan to see my home in the very near future.

Based on the below information from IRS web site, it seems
that I can get a "pro-rated" exclusion on the sale of my
home, even though I've lived in it for less than 2 years.
You're correct only if you meet one of the conditions that
qualify you for the reduced exclusion. It's not automatic.

See IRS Publication 523.

Phil Marti
Topeka, KS
 

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