Hal_Al
Level 15

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Q. Would they still get the capital gains tax exclusion?

A. Probably, but not the full $250,000 maximum. 

 

You  apparently know about the rule that usually you must live in the home 2 out of the 5 years prior to the sale, to qualify for the exclusion.  There is a reduced maximum exclusion, for those who don't meet the 2 year rule due to "unforeseen circumstances".   In your case (you lived in the home 17 months during the 5 year period), you maximum exclusion would be 17/24 x $250,000 = $177,000 +/-.  Health reasons usually qualify as "unforeseen circumstances". But, as others have said, the IRS will look at the details of your situation. 

 

References:

http://www.nolo.com/legal-encyclopedia/the-partial-home-sale-tax-exclusion-irs-approved-unforeseen-c...

 

https://www.irs.gov/publications/p523#en_US_2022_publink100073099

 

 https://www.journalofaccountancy.com/issues/2009/nov/20091783.html

 

https://www.law.cornell.edu/uscode/text/26/121

 

http://www.nolo.com/legal-encyclopedia/qualifying-the-home-sale-exclusion-without-living-in-the-home...