@Catchasoundset wrote:
Hi. "Partial" was a poor choice of verbiage. What I meant was say I sell for $260,000, what percent of that figure can I reduce due to the "unforeseen circumstance"? I need to hit the suggested worksheets and maybe it's there.
Thanks and sorry for the confusion.
Let's review the math.
First, you calculate your capital gains. That's the difference between selling price and your purchase price, with certain adjustments. Suppose you sell for $260,000 and your purchase price was $150,000. Your capital gain is $90,000.
Next, determine if you qualify for an exclusion. If you owned the home at least 2 years, lived in it as your main home for at least 2 of the past 5 years, and never used it as a rental, you can exclude up to $250,000 of gain. Since your gain is less than $250,000, the entire gain is excluded from tax.
If you meet the 2 year/5 year rule, you can exclude the full $250,000. The reason you are selling doesn't matter.
The partial exclusion comes in if you lived in the home less than 2 years. Suppose you only lived in the home 6 months and were forced to sell. Your exclusion would be 6/24x$250,000 or $62,500. If your gain is $90,000, then $62,000 is excluded and $27,500 is taxable. If you lived in the home 1 year, your exclusion limit would be 12/24x$250,000 or $125,000. If your gain is $90,000, then all the gain is excluded since it is less than your partial limit.
Does that help?
