Bergerson Tax Services

You can sell your primary residence at a tax-free gain of up to $250,000 ($500,000 on a joint return). You just need to have lived in it for 2 of the prior 5 years. These time requirements can be relaxed in certain situations.

Partial Federal Income Tax Exclusion. If a sale occurs prior to satisfying the two-year test, a partial federal income tax exclusion can be claimed if the sale was because of a change in work, health reasons, or an unforeseen circumstance. For example, a federal taxpayer who sold his home in order to acquire the space needed to care for his disabled mother was entitled to a partial federal income tax exclusion.

The IRS ruled that the sale in this case was because of the health of a qualifying individual. IRS Federal Regulations contain several situations that constitute unforeseen circumstances, including divorce, casualty, or multiple births from the same pregnancy. The IRS continues to expand the definition of unforeseen circumstance in regards to federal income tax exclusion.

More recently, the IRS has held that a move caused by crime in the neighborhood was an unforeseen circumstance, allowing the homeowner to claim a partial federal income tax exclusion. One such case involved a homeowner who was held up at gunpoint while leaving his residence and forced to drive an assailant to ATM machines. The homeowner moved from the residence, renting it out and subsequently selling it, because of the traumatic and violent nature of the crime.

A partial federal income tax exclusion is figured by multiplying the dollar limit (ex:$500,000 for a married couple) by a fraction, the numerator of which is the number of days of ownership and use (ex:365) and the denominator of which is 730 days.

To learn more about federal tax laws with selling your home or federal tax regulation changes, contact the Bergerson Federal Income Tax Preparation Offices at info@bergersontax.com.