I bought my townhouse 7 years ago not knowing there was an illegal vacation rental next door. The owners lied to the city, HOA, builder and realtors. I has meetings with the city, HOA, builder, realtors to try to make it stop. The builder said it was his number one priority to end the situation in his new project. The owners had no garbage service, the renters were to pack it out so there was a mouse infestation. I never knew who or what was going to be next door when I got home. The noise was intolerable and the owners started retaliating against me by having some of their tenants harass me, a then 63 year old retired nurse.
They owner on the other side of this unit sold as he did not want to deal with the situation. I left and decided to rent and move back in when the situation cleared itself, knowing I had 5 years to move back in before the cap gains exemption was not available. Enter Covid. Because of a moratorium on rentals in Oregon, I could not ask my tenants, a single mother with 4 kids, to leave. This lasted for over 2 years. By the time her lease ended it was over the 5 year mark. I moved back in last May. My 24 (nonsequential) months of residence is not in the required 5 years but is 6 years. I would like to sell and put this whole situation behind me. Can I claim a special circumstance.
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No.
Unfortunately, you cannot claim an exception to the eligibility test for the exclusion of capital gains.
Please read the Exceptions to the eligibility test on page 4 of this IRS publication.
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