I'm now just outside of the 2 of the last 5 years rule where I could be excluded from capital gains. However in reading more closely, there are many exclusions and one of them I qualify for. I was actually forced to sell this property due to loss of a job and qualifying for unemployment. When unemployment ran out, I was forced to sell the property.
Some of the text I found is copied below:
In Final Regulations issued by the IRS, the sale or exchange of a primary residence is deemed to be because of "unforeseen circumstances" if it is sold because of the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. Some of the specific examples of these types of occurrences include:
This also includes the following if it applies to the taxpayer, the taxpayer's spouse, a co-owner of the home, or a person whose principal home is in the same household as the taxpayer:
- Death
- Lost employment and becoming eligible for unemployment compensation
- A change in employment or self-employment that resulted in an inability to pay housing costs and reasonable basic living expenses for the household (including amounts for food, clothing, medical expenses, taxes, transportation, court-ordered payments, and expenses reasonably necessary to produce income, but not for an affluent or luxurious standard of living)
- Divorce or legal separation under a decree of divorce or separate maintenance
- Multiple births resulting from the same pregnancy
