Capital gains on relocation question

[me95717]

Appreciate any help with this one, thank you.

I've been a remote worker for 12 years, but am closing my marketing business to care for my new grandchild, as my daughter and son in law would like me to be their 'granny nanny.' This would be a paid position with an annual 1099, as the hours are different weekly depending on their needs (they are both full time remote workers.)

We have owned our home for 10 years but only lived in it full time for the last 15 months, as my husband's job moved us around the country.  Currently, we live 38 miles from our daughter's house if we drive through the city, but 52 miles if we take the toll road to avoid the crowds and traffic, which we usually do. 

The commute is brutal and we would like to move closer, but can't afford to pay tens of thousands in capital gains on this house. Does this move qualify for an exclusion, or do we just need to wait another 9 months before we move in order to avoid the tax?

[Hal_Al · Accepted solution]

Simple answer:  wait another 9 months before you move in order for there to be a clear cut qualification for the home sale exclusion. 

Whether you qualify for the job change exception to the 2 year rule, is subject to opinion. Probably not.  Generally,  "when evaluating whether you satisfy the distance test, the IRS requires you to use the shortest commutable routes between two locations". I'm of the opinion, you don't qualify. 

The other exception to the 2 year rule is the "unforeseen circumstances" rule.  That, too, is  subject to interpretation.  Again, I don't think you qualify. 

For more on Unforeseeable Events/unforeseen circumstances, see 

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

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

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

 

[Bsch4477 · Accepted solution]

You may take an exclusion if you owned and used the home for at least 2 out of 5 years.

The use of the home doesn’t have to be consecutive months. Did you not use the home at any time before the last 15 months?

[me95717]

Thanks for responding, I really appreciate it. I spoke with two local CPAs, and got a completely different answer from each one. Your clarifying how the IRS would view the two driving distances was so helpful.  I agree, we will just wait to move. And drive...and drive...and drive. 

[me95717]

Thanks so much for taking the time. We have lived here sporadically over the last ten years, when we are working in town, but out of the last five, we've been here only 15 months. So we will wait till we've been here not a day less than 24 months in the last five years before we sign closing papers.