There are some exceptions to the Universal Exclusion (2 Year Rule), which allows exclusion on the gain from the sale of a primary residence.
If the two-year use or ownership requirement is not met, or even if the exclusion has been used within the last two years, you may still qualify for a partial or full exclusion if the primary reason for the sale was change in employment, health reasons, or other unforeseen circumstances.
A partial exclusion is available if the two year rules have not been met, and is prorated for the number of months the exclusion has been met. For example, you sell your home you have lived in for 12 months for a new job in another town. Had you owned and occupied the home for 2 years, you would qualify for the full exclusion, but since 12 months out of the 24 month requirement have been, you are entitled to 1/2 of the exclusion.
A full exclusion is available if the homeowner becomes physically or mentally incapable of self-care. For example, you move into a rental property that you plan on selling after two years so you can exclude the gain. The property is sold after a year because you are diagnosed with Alzheimer’s and must move to a nursing home for proper care. Even though the two-year requirement has not been met, you qualify for the full $250,000 exclusion on the gain from the sale.
If you want to learn more about this one read pages 14-17 of IRS Publication 523.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Capital Gains Tax Planning | Universal Exclusion for Sold Rental Property is brought to you by SimplifyEm Pay Rent Online and Property Management Software
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