I put my house on the market after being laid off and qualifying for unemployment, but I just got a job offer that will start before my house closes - would I still qualify for partial exclusion of gain?

[braydeck]

We'd been living in our home for 10 months when I was suddenly laid off. Due to existing debts, my wife and I decided we couldn't afford to keep the home, so we put it on the market right away. In the meantime, I was able to quickly get a job that will start before our house sale closes. We have an accepted offer on another home out of state, and my new job is remote-only. Will I still qualify for the partial exclusion on the gain from the home (it will be significant) or will we no longer qualify because I found employment again? My wife doesn't work and takes care of our 3 kids full-time.

[Mike9241]

a reduced exclusion is available if the primary reason you sold the home was due to a change in place of employment or unforeseen circumstances. based on what you provided the change of employment is not the reason for the sale. however, you qualify under one of the rules for unforeseen circumstances.

this includes loss of job resulting in being eligible for unemployment compensation which fits your situation.

[braydeck]

So even if the actual "close date" / sale is after I start my new job, as long as I received unemployment and the reason I posted the home for sale was because of that unemployment, I'm in the clear? Just clarifying that technically I would have a job again before the close date.

[Hal_Al]

Q.   Am I in the clear even if I have a job again before the close date?

A.  Probably.  Nobody here can give you an answer with absolute certainty.  The Unforeseen circumstances exception depends on all the details of the circumstances.   

You do not have to submit proof, when you file your tax return.  Just claim the exclusion.  Be prepared to explain with details if the IRS questions it.  Just being unemployed, for a period, due to covid,  is probably enough.  

References: https://gsacpas.com/six-key-tax-breaks-that-homeowners-may-be-able-to-claim/

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

https://alloysilverstein.com/understanding-the-home-gain-exclusion/

Since you only live in the home 10 months, the maximum exclusion is 10/24 x $500K = $208,333.

[Opus 17]

@braydeck 

What we normally called the “unforeseen circumstances” test has several “safe harbors” – specific situations which, if you meet them, a partial exclusion will be allowed.  Because you got a new job, you don’t meet the exact definition of the economic circumstances safe harbor, and because your job is remote and does not require that you move, you don’t meet the exact definition of the job change safe harbor.  However, the unforeseen circumstances rule is broader than just the specific safe harbor is listed in the instructions.

I think you have a good chance of being successful with a claim of partial exclusion, but no one can guarantee that. Make sure that you save proof of your situation and all of the surrounding circumstances for at least six years.