Capital Gains When Relocating

[mgerard28]

We are relocating for my husband's job and are selling our house after owning it for about 20 months. We know we will have to pay some capital gains, but because we are moving for his job, are we stuck with the entire 15% of the profit, or can we pay a lower rate? And is it pro-rated at all since we're so close to the 2-year mark?

[Critter-3]

Does Your Home Qualify for a Partial Exclusion of Gain?
If you don't meet the Eligibility Test, you may still qualify for a partial exclusion of gain. You can meet the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.

Work-Related Move
You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.
• You took or were transferred to a new job in a work location at least 50 miles farther from the home than
your old work location. For example, your old work location was 15 miles from the home and your new work
location is 65 miles from the home.
• You had no previous work location and you began a
new job at least 50 miles from the home.
• Either of the above is true of your spouse, a co-owner
of the home, or anyone else for whom the home was
his or her residence.

The TurboTax program will cover this partial exclusion in the Sale of Home interview -

• Click on Federal Taxes
• Click on Wages and Income
• Click on I'll choose what I work on
• Scroll down to Less Common Income
• On Sale of Home (gain or loss), click on the start or update button

In reference to gains on the sale of your home where you did not live or own the home for at least two years during the five years from the date of sale, a Partial Exclusion May Be Available  -  See IRS Publication 523 Selling Your Home page 6 - http://www.irs.gov/pub/irs-pdf/p523.pdf#page=4

[Opus 17]

If you meet all of the usual test for the capital gains exclusion except that you have not owned the home for two full years, and if the move is unexpected and work related, you qualify for a partial exclusion.  The amount of the partial exclusion will be based on which ever is shorter: the length of time you have owned the home or the length of time since you last used the exclusion.  Assuming that you bought your current home and sold your previous home at about the same time, then 20 months is about 83% of 2 years, so you could exclude your gain up to 83% of the usual limit (which is $250,000 or $500,000 if married filing jointly). So you could exclude from taxation your gain up to about $208,000 or $416,000.  (The percentage is actually calculated to the day from closing day to closing day.). There is a worksheet in publication 523 that can help you calculate this.

[Hal_Al]

Q. Are we stuck with the entire 15% of the profit?

A. No

Q. Or can we pay a lower rate?

A.  Yes, but not exactly. Your entire gain (up to $416,000) is excluded from income.

Q. Is it pro-rated at all since we're so close to the 2-year mark?

A.  Yes, but not exactly.  The amount of your gain is not prorated.  It's the maximum exclusion that is prorated.  So, as Opus17 explained, as long as you total gain is less than $416,000, none of it will be taxed.  Another way of saying it is: it's not 83% (20/24 = 83%) of your gain that's excluded; it's 100% of your gain, up to 83% of $500,000.

If you receive a form 1099-S (usually included in your closing papers), you will have to report the sale on your tax return.  The TurboTax interview can handle putting the home sale exclusion on  tax form 8949 and Schedule D

If your total profit (capital gain), on the sale,