RESIDENCE SALE

[TAXMAN]

TP sold residence 11/14/2022. took full exclusion 250k. tp bought new house 05/09/2023 and sold January 9 2025 with a gain. Sold because tp didn't like the neighbor hood as it was turning into. Can tp get a partial exclusion? tp thinks because of being outside the 2 years exclusion sale it was ok. I think because tp did not hold for 2 years  not entitled. Your thoughts?

[Margaret CPA in OH]

The QB summary of Sec. 121 mentions ownership and use tests. 

"The individual must have owned and used the home as a principal residence for at least two out of the five years prior to the sale..." I think May 9, 2023, to January 9, 2025 misses the two years out of he five years prior to the sale.  It seems part of the five years prior to the second sale, TP was still in the first residence, a different principal residence.

"The exclusion applies to only one sale every two years.." November 14, 2022, to January 9, 2025, is more than two years.

BUT both tests don't appear to have been met, just the second one.

[jklcpa]

Margaret is correct that client doesn't meet the eligibility test. He must use it 2 years out of the last five, 730 days.

However, if a TP fails the eligibility test, it is still possible to take a partial exclusion IF certain other requirements are met. Those specifically allowed are: work-related move, health reasons, unforeseen circumstances, and other.  You can find all of this general information in Pub 523 under the caption "Does Your Home Qualify for a Partial Exclusion of Gain?

I don't think your client will qualify for the "unforeseen circumstances", but if you'd like to see the valid reasons IRS considers "unforeseen circumstances" you can read that in this older article from The Journal of Accountancy.

 

[mcb39]

The only time I have ever had an exception was in a case where the taxpayer moved more than 50 miles because of his job.  We did considerable research that year so if you have a situation, be sure to read up on those exceptions.  I agree that Taxman's client is not entitled to the exception.

[Pacun]

"unforeseen circumstances"  means that he/she didn't expect the neighborhood was going to turn bad.  

I would use partial exclusion.

[DANRVAN]

On 1/16/2025 at 12:37 PM, TAXMAN said:

Sold because tp didn't like the neighbor hood as it was turning into.

Really not enough information here.  Need more detail on why " tp didn't like the neighbor hood as it was turning into", and why that compelled them to sell the house.   While it might not have to be as extreme as weekly drive by shootings,  I imagine there would have to be some unforeseen and unresolvable factor that led to a hardship or an uncomfortable living environment.  Rather than just a general distaste for the the way others were living in the neighborhood.

[TAXMAN]

Thanks for all the input. I will delve further into why tp sold I think maybe she is grasping at straws.