@Hal_Al wrote:
Q. Is vandalism by a neighbor qualify as “unforeseen circumstance” under capital gains?
A. Simple answer: Yes. But, more accurately, "probably", as explained at the other replies.
Q. Curious what the "exclusion" percentage might be?
A. It's not actually an exclusion percentage or prorated exclusion. When you fail to meet the 2 year rules, but are claiming an exception for “unforeseen circumstances", you are allowed a reduced maximum exclusion. It's best explained by example. If you only lived there 8 months, the maximum you could exclude would be 8/24 x $250,000 = $83,333. So, as long as your gain was less than $83,333, you would be allowed to exclude the entire gain.
Also note that if you sell in less than 1 year, any gain that is not eligible for the exclusion will be taxed as short term capital gain which means ordinary income rates of 12%-36% depending on your other income. If you own the property more than one year (366 days), any gain that is not covered by the exclusion will be taxed as long term capital gains at rates of 0%-20% depending on your other income.
