Hi - I’ve been renting a home since 2016, bought it in June 2020 and will be selling it this week. It will be less than 2 years of ownership when I sell it but I’ve lived there for over 5 years. Anyway To get the personal residence exception to avoid paying capital gains tax?
https://www.journalofaccountancy.com/issues/2002/oct/thehomesalegainexclusion.htmlREDUCED EXCLUSION
Taxpayers who sell their principal residence but don’t meet the ownership and use requirements, or who sell their home within two years of selling another home, may be eligible for a reduced exclusion. The reduced exclusion is available if a change in place of employment, health or unforeseen circumstances necessitated the sale. Neither the Internal Revenue Code nor the proposed regulations define the change in place of employment, health problems or unforeseen circumstances that would allow taxpayers to qualify for the reduced exclusion.
CPAs would calculate the reduced exclusion by multiplying the maximum dollar limitation ($250,000 or $500,000 for qualifying married taxpayers) by a fraction. The numerator of the fraction is the shortest of (1) the time the taxpayer owned the home during the five-year period ending on the date of the home’s sale, (2) the time the taxpayer used the home during the five-year period ending on the date of sale or (3) the time between the date of the prior sale for which gain was excluded and the date of the current sale. The numerator and denominator are expressed in either days or months. If the measure is days, the denominator is 730 days (365 days X 2 years). If the measure is months, the denominator is 24 months.
Example. On January 1, 2001, Sally, an unmarried taxpayer, buys a home and uses it as a principal residence. On July 1, 2002, 18 months later, Sally sells the home because her employer transfers her to an office in another state. Sally may exclude up to $187,500 (250,000 X 18/24) of the gain on the sale of her home.
Example. On January 1, 1999, Tom buys and begins to live in a home. On January 1, 2001, Tom marries Ursula and she moves into Tom’s home. On January 1, 2002 (12 months after Ursula began residing in the home), they sell the home because their employers transfer them to another state. Because only Tom has satisfied the two-year use requirement, the couple cannot use the $500,000 exclusion. Rather, their exclusion is determined by calculating the limitation amount for each spouse as if they had not been married. Therefore, Tom can exclude up to $250,000 of gain because he meets both the ownership and use requirements. Although Ursula does not meet these use requirements, she can claim the reduced exclusion because the sale is due to a job change. Ursula can exclude up to $125,000 (250,000 X 12/24) of the gain. Therefore, Tom and Ursula can claim a combined exclusion of $375,000.
Observation. Because the reduced exclusion is calculated by multiplying the exclusion, rather than the gain, by the appropriate fraction, CPAs will find the reduced exclusion provision allows most gains to be fully excluded from income.