I owned a home occupied by my father, he died. is that a special exemption?

Forum|Forum|3 years ago
December 1, 2022
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TurboTax Deluxe Online

Opus 17

Level 15

For what?

If you sell property for a gain, you pay capital gains tax. (Gain is the difference between the selling price and the cost basis. Cost basis is generally what you paid for the property; special rules apply if the home was a gift or inherited.) You can exclude part or all of the gain from the gains tax if it was your main residence (where you lived most of the time) and you meet certain time limits. There is no exclusion if someone else lived in the home, whether a family member or unrelated tenant.

If your father previously owned the home, and transferred it to you for some reason like avoiding probate, the circumstances of the transfer might change the gains calculation by affecting your cost basis. But we need more details.

daveamyersAuthor

Level 2

I read in publication 523 the following,

Unforeseeable Events
You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold.
.......
You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
1.
Died;

Opus 17

Level 15

@daveamyers wrote:

I read in publication 523 the following,

Unforeseeable Events
You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold.
.......
You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
1.
Died;

The partial exclusion rule is for people who owned the home and lived in it as their main home. Even if you did qualify, the percentage of the exclusion is calculated from the shortest of 3 periods:

1. How long you owed the home

2. How long you lived in the home as your main residence

3. The length of time since you last used your personal exclusion.

In the case where you never lived in the home, your exclusion is 0 months/24 months or zero %.

If you moved back into the home as your main home for a period of time before selling, you might qualify for a partial exclusion, assuming your father's death created some kind of emergency financial hardship for you that required you to both move back into the home and to sell it. But even then, you would be hit with the "non qualifying period" rules and most of the capital gains would not be eligible for any exclusion.

Mike9241

Level 15

sorry for your loss

under the unforeseen circumstance exclusion, the primary reason for the sale is the occurrence of an event that you did not anticipate before purchasing and occupying the residence. apparently you never occupied it.

reg 1.121-3 puts a different spin on the death of the occupant.

(2) Specific event safe harbors. A sale or exchange is deemed to be by reason of unforeseen circumstances (within the meaning of paragraph (e)(1) of this section) if any of the events specified in paragraphs (e)(2)(i) through (iii) of this section occur during the period of the taxpayer's ownership and use of the residence as the taxpayer's principal residence:

(iii) In the case of a qualified individual described in paragraph (f) of this section -

(A) Death;

note that the reg refers to a qualified individual

(f) Qualified individual. For purposes of this section, qualified individual means -

(1) The taxpayer;

(2) The taxpayer's spouse;

(3) A co-owner of the residence;

(4) A person whose principal place of abode is in the same household as the taxpayer; or

(5) For purposes of paragraph (d) (sale for health reasons) of this section, a person bearing a relationship specified in sections 152(a)(1) through 152(a)(8) (without regard to qualification as a dependent) to a qualified individual described in paragraphs (f)(1) through (4) of this section, or a descendant of the taxpayer's grandparent.

if you didn't live in the house, it would seem you do not meet the criteria of death of then occupant to qualify for the exclusion.

however, unforeseen circumstances is a very broad category. the problem is your lack of occupancy. you may want to confer with a tax pro to further investigate your situation but my opinion as of now is you do not qualify for the home sale exclusion

Mike9241