Exceptions to Non-Qualified Use
The Housing and Economic Recovery Act of 2008 has provided three (3) exceptions to homeowners where the sale of their primary residence may not otherwise qualify for the tax free exclusion under the new requirements now included in Section 121.
- The first exception will have the greatest impact. Homeowners can move out of their primary residence and convert it to any other non-qualified use such as rental, investment, vacation, or business use property and still qualify for the tax free exclusion under Section 121.
The key is that homeowners must still qualify for the other requirements under Section 121 at the time they close on the sale of their primary residence. They must have (1) owned and (2) lived in the real property as their primary residence for at least a combined total of 24 months out of the last 60 months (two out of the last five years) in order to qualify for 121 exclusion treatment. - This also means that Revenue Procedure 2005-14 still applies and that homeowners can also complete a 1031 exchange to defer any balance of capital gains above the 121 exclusion limitations.
- The second exception involves those homeowners affected by qualified official extended duty such as military service.
- The third exception involves unforeseen circumstances.
https://www.exeterco.com/article_changes_to_section_121
