Do I apply for any exclusions for capital gains tax? I lived in my house for a year, and will make a profit off of it when it sells. But do I qualify for any exceptions?

[taylore-dinsdale]

I have only lived there a year. But I did take a $20,000 pay cut at my current job. Does that qualify as a change in circumstances to qualify for a exemption, or partial exemption?

[SweetieJean]

You expect to make a profit after only one year?

[taylore-dinsdale]

Yes, it's looking like 40-50,000 profit. It was the first house built in the subdivision and the subdivision took off with multiple comparable housed selling for 50,000 more than I got mine for.

[TomYoung · Accepted solution]

Maybe, under the "unenforceable event" exception:

Partial Exclusion May Be Available

If you don't meet the eligibility test, you may still qualify for a partial exclusion of gain if you moved because of work, health, or an unforeseeable event.

You can qualify either by meeting a set of standard requirements (the "safe harbor" provisions) or by showing enough facts and circumstances to validate your claim.

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Unforeseeable events.

You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold.

• Your home was destroyed or condemned.

• Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn’t matter whether the loss is deductible on your tax return.)

• You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:

  1. Died;

  2. Became divorced or legally separated;

  3. Gave birth to two or more children from the same pregnancy;

  4. Became eligible for unemployment compensation;

  5. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income).

• An event is determined to be an unforeseeable event in IRS published guidance.

Showing facts and circumstances.

If your circumstances don’t match any of the standard requirements described above but the primary reason for sale, based on facts and circumstances, is work-related, health-related, or unforeseeable. Important factors are:

• The situation causing the sale arose during the time you owned and used your property as your residence.

• You sold your home not long after the situation arose.

• You couldn’t have reasonably anticipated the situation when you bought the home.

• You began to experience significant financial difficulty maintaining the home.

• The home became significantly less suitable as a main home for you and your family for a specific reason.

You'll have to make a determination as to whether you feel you can make a case here.

Tom Young

[taylore-dinsdale]

Thank you Tom. Do you have more information on the partial exemption? I thought I ready it could be up to 50%. Isn't capital gain based on tax bracket? Does your tax bracket depend on personal income and income from the sale on the house, or just income from work? Are you only taxed on the amount you are over the tax bracket, or is the whole amount taxed at the capital gains rate?

Sorry for all the questions. There are just a few things I can't make sense of from all the different things I have read. Thank you for the great information!