If I sell my home because I got a new job and needed to move closer will I have to pay capital gains? I have lived in my primary address for 18 months

[RichardG]

Generally, a homeowner must own and live in the home for two out of the last five years to qualify for the $250,000 ($500,000 if filing a joint return) exclusion for capital gain on the sale of a primary residence.  However, there is an exception to the two-year rule for tax payers who sold early for a job-related move.  You meet the standard requirements if any of the following happened during the time you owned and lived in the home you sold:

• You took or were transferred to a new job in a work location at least 50 miles farther from home than your old work location.
• You had no previous work location and you began a new job at least 50 miles from home.
• Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was their residence.

If you meet this and the other requirements for the capital gains exclusion, you're entitled to a percentage (in your case, 75%) of the exclusion amount.

Please follow this link for more information.  https://www.irs.gov/uac/about-publication-523

[Davidt522]

Could you please confirm this is the case also for US citizens living abroad and selling a foreign primary residence?

[tagteam]

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@Davidt522 wrote:

Could you please confirm this is the case also for US citizens living abroad and selling a foreign primary residence?

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Nothing in the Internal Revenue Code nor Treasury Regulations relating to the Section 121 home sale exclusion requires that your principal residence be located within the United States in order to qualify for the exclusion.

[djfunk]

What if you have owned the home for 10 years, lived in it for the first 7, relocated due to job and rented it out for 3 years and 2 months before selling, can you still get a pro rated exclusion? 

[Carl]

can you still get a pro rated exclusion?

No. Since you did not sell the home within a reasonable time after your move, but intsead converted it to rental use (which is a form of business use), you don't meet any of the above criteria at all - not even for a partial exclusion.

If the property was your primary residence for at least 730 days of the last 1826 days you owned it, then you qualify. The look back day count starts from the closing date of the sale.

[Opus 17]

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@djfunk wrote:

What if you have owned the home for 10 years, lived in it for the first 7, relocated due to job and rented it out for 3 years and 2 months before selling, can you still get a pro rated exclusion? 

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You can suspend the 3 year rule for up to 10 years if the reason you moved out was due to military or foreign service orders.  For any other reason, keeping it as a rental for more than 3 years kills the exclusion. 

[AmeliesUncle]

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@djfunk wrote:

What if you have owned the home for 10 years, lived in it for the first 7, relocated due to job and rented it out for 3 years and 2 months before selling, can you still get a pro rated exclusion? 

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Yes, you can use the Reduced Maximum Exclusion if the circumstances of your job change while the house was your Principal Residence (assuming you meet the rules about the job change, such as the 50 mile rule).

https://www.law.cornell.edu/cfr/text/26/1.121-3

[Opus 17]

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@AmeliesUncle wrote:

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@djfunk wrote:

What if you have owned the home for 10 years, lived in it for the first 7, relocated due to job and rented it out for 3 years and 2 months before selling, can you still get a pro rated exclusion? 

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Yes, you can use the Reduced Maximum Exclusion if the circumstances of your job change while the house was your Principal Residence (assuming you meet the rules about the job change, such as the 50 mile rule).

https://www.law.cornell.edu/cfr/text/26/1.121-3

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No.  That section applies to people who move out early, after less than 2 years of ownership.  It does not apply to people who move out late, after the expiration of the 3 year grace period. 

Even if you tried to assert that 121.1-3(a) applied to both the 2 year ownership/residency rule and the 3 year grace period, you would be defeated by b(1) and b(4), "The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time;" and "The taxpayer uses the property as the taxpayer's residence during the period of the taxpayer's ownership of the property;" The sale (38 months after the job change) is not proximate in time to the job change and the taxpayer was not using the home as their main home.

[AmeliesUncle]

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@Opus 17 wrote:

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No.  That section applies to people who move out early, after less than 2 years of ownership.  It does not apply to people who move out late, after the expiration of the 3 year grace period. 

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but fails to satisfy the ownership and use requirements described in § 1.121-1(a) and (c) or the 2-year limitation described in § 1.121-2(b)

Where do you see that?  It says it applies to those who do not meed the 2/5 rule (or the 2-per-year rule).  That applies to this situation.

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@Opus 17 wrote:

you would be defeated by b(1) and b(4), "The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time;" and "The taxpayer uses the property as the taxpayer's residence during the period of the taxpayer's ownership of the property;" The sale (38 months after the job change) is not proximate in time to the job change and the taxpayer was not using the home as their main home.

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If a safe harbor described in this section applies, a sale or exchange is deemed to be by reason of a change in place of employment, health, or unforeseen circumstances.

If a safe harbor described in this section does not apply, a sale or exchange is by reason of  a change in place of employment, health, or unforeseen circumstances only if the primary reason ...

The Safe Harbor overrides (1) and (4).  Those only come into play if the Safe Harbor does not apply.

[Opus 17]

I've simply never heard of the reduced exclusion amount applying to the 3 year grace period, and none of the examples in the code section apply to the 3 year period, they all apply only to the 2 year ownership rule.  Maybe this is a case where the law is more open ended and the IRS only wants it thought of in a certain way so they encourage one way of thinking and discourage others.  I'd like to see some other experts look at this.

[Maj92az]

Hello. My question regarding this is the grey area claiming "took a new job". I am under the 2 year on my primary and relocating. Technically I have not secured a job at my new area (1000 miles away) but I will when I get there. 

My reason to move is also employment related. And unforeseeable events about living where my home was purchased. How can I clearly document my move for tax purposes. 

[Opus 17]

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@Maj92az wrote:

Hello. My question regarding this is the grey area claiming "took a new job". I am under the 2 year on my primary and relocating. Technically I have not secured a job at my new area (1000 miles away) but I will when I get there. 

My reason to move is also employment related. And unforeseeable events about living where my home was purchased. How can I clearly document my move for tax purposes. 

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I don't think it's a gray area, if you move to change jobs, that qualifies for the reduced exclusion.  It doesn't say you have to have a confirmed job before you move.  (However, if you did sell, move, fail to get a job, and then move back to the original geographic area, then you would probably not qualify.)

[hlam7]

I have a situation where I am unsure if we qualify for the reduced maximum exclusion.  

My wife accepted a new job on February 1, 2020.  We also signed for a new home on February 20, 2020 that is 90 miles away from her new job.  Her old job was around 15 miles away.  We only lived in the new home for one year and three months.  We finally decided on relocating closer to her new job that is around 20 miles away.  Given that she accepted her job before I moved in to our new home does that disqualify us from the reduced maximum exclusion?  Does it matter if she accepted her new job before we moved in?  

[KathrynG3]

It  may be possible to qualify for a partial exclusion. 

See 2020 Publication 523, page 6 for more information about partial exclusions and page 7 for a Exclusion Limit Worksheet.