From: Bakersfield, CA
Hello TaxMama,
I enjoy your newsletters greatly, thanks.
I recently read in your issue
#306 of person named Corey who lived in his personal residence for only 15
months.
Did I understand you to say that only a pro-rated amount of his gain needs
to be claimed on the schedule D?
I thought if the exclusion did not apply, the ENTIRE gain was taxable.
Which is right?
larry
Hi Larry
Thanks for your note.
Clearly, I wasn't clear, was I?
You're right, under normal conditions, you have to stay in the house for
the full 12 months - except for moving due to a job or an illness.
But there is a provision in the tax code for "unforseen circumstances"
There's actually a good explanation of what is covered in this
3 year old article in USA Today by Sandra Block
Since Corey already understood the concept, I didn't bother to explain.
But I should have for everyone else reading this newsletter.
Briefly, if you can prove to IRS that something came up and you had no choice
but to move, you'll be able to qualify for the special treatment, allowing
you to pro-rate that residential sale exclusion.
Some situations that might qualify:
* You move into a neighborhood and totally didn't realize just how much
crime there is. You feel completely endangered and have either been the victim
of crime, or can produce reports about crimes taking place immediately around
you. (Local newspapers often include a summary of the police blotter.)
* You weren't expecting to have children, and suddenly find yourself pregnant
with twins or triplets. There's absolutely no room in your cottage for so
many people.
So, if you're selling a home before the 24 months expires...there must be
some reason you're in such a hurry that you can't wait a few more months to
avoid paying taxes. What's your hurry?
Think about it. Your reason for selling (other than to make a quick profit),
might just qualify you for the unforseen circumstances provision.
So sorry.
Best Wishes,
Eva Rosenberg, MBA, EA
