Looking for help in the following scenario:
Bought house: Nov 2009
Moved out of house: Oct 2013 due to new job
Started Renting House: Oct 2013
Sold House: Jun 2018
Lived in house for 3 months in last 5 years, therefore eligible for partial exclusion of real estate gains.
After renting the house, losses have been carried over that are eligible to be realized with sale of house
Question is: Can I claim partial exclusion (from 3 month ownership in last 5 years) and carryover losses (from rental period) to calculate tax liability?
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In order to qualify for a partial exclusion, your move has to be a "forced" move where you had no choice in the matter. If you had to move before you'd spent the minimum two years in the house because of work or health reasons, you can get a prorated exclusion based on how long you did live in the house. For example, if you'd lived there only one year and were then forced to move because you were transferred to a new office that's at least 50 miles further away from your house than the old office was, then you could claim a 50% exclusion. In that case, you'd get to exclude $250,000 of gains if married filing jointly or $125,000 of gains if filing under another tax status. You can also claim a partial exclusion if you were forced to move because of health issues or because you had to leave to care for an ailing relative.
Now understand the partial exclusion is a percentage of your actual gain - not a percentage of your maximum allowed exclusion. So if you lived in the house for one year that would be a 50% exclusion. If you sold the house for at $100,000 gain, then only 50% or $50,000 of that gain would be excluded.
For you, that would mean 3/24ths of your gain would be excluded if you actually qualify.
If you have not lived in the house for 24 months out of the past 60 months, you don't qualify for the exclusion.
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