Home Sale Exclusion:
You can exclude from gross income up to $250,000 ($500,000 joint) of gain from the sale of your principal residence. The exclusion can be claimed once every 2 years. An exception is provided if you do not meet the ownership and use tests, or the limit of one sale in two years as a result of a change in place of employment, health, or unforeseen circumstances. IRC Sec. 121(c). Unforeseen circumstances include: involuntary conversion (e.g., fire), death, or divorce. Reg. Sec. 1.121-3(e), and other situations deemed appropriate. The following factors will be considered in determining if another circumstance qualifies: The sale and the circumstances giving rise to it are close in time; the suitability of the house as your principal residence materially changes; your financial ability to maintain the property is materially impaired; the circumstances giving rise to the sale were not reasonably foreseeable when you began using the property as your principal residence; and the circumstances giving rise to the sale occur during the period you in fact own and use the property as your residence. Reg. 1.121-3(b) In a recent ruling the IRS held that the commission of a violent crime against a homeowner at his home justified a sale and waived the requirements. PLR 200630004. A reduced exclusion applies to gain from the sale of the home. The $250,000/$500,000 maximum exclusion is multiplied by the shortest of the following: the period you owned the property during the 5-year period ending on the date of sale; the period you used the property as your principal residence during the 5-year period ending on the date of sale; or the period between the date of the prior sale or exchange of property for which you excluded gain under Code Section 121 and the date of the current sale] divided by 730 days.
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