I am selling my house. Can be exempt from Capital Gains Tax? I bought that house while active, but am now retired.

[hootiehome]

Reading the IRS section about military exemption and I cannot figure out how it works for recent retirees.  

[Critter-3]

Being military has nothing to do with it if this is your personal residence ...

If you sold your primary personal residence and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale if your gains are less then the exclusion amounts of $250,000 if filing Single or $500,000 if filing Married Filing Jointly (and both lived in the home for two years).  

If you had a gain greater then the exclusion amounts then you would have to report the sale.  Also, if you received a Form 1099-S for the sale either with a gain or a loss, the sale has to be reported. 

[Bsch4477]

For most taxpayers the rules for the exclusion are;

** Owned the home for at least two years.
** And lived in that home for at least two of the last five years. The two years living there doesn't have to be in sequence.

But there  are some special considerations for military personnel and foreign service officers. 

If you rented the home to others because you were on "qualified extended duty" with the military you can "suspend" that period of time in the capital gains calculation for "the last five years" timeframe. But, a suspension period can't be more than 10 years.

[hootiehome]

It does.  Being military can exempt me from the 2/5 rule.  Below is from the IRS website.  I am just having a hard time understanding it and how it may apply to my situation.  I was active duty when I bought the house, but now I am retired.

Service, Intelligence, and Peace Corps personnel.

If you or your spouse are a member of the Uniformed Services or the Foreign Service, an employee of the intelligence community of the United States, or an employee, enrolled volunteer or volunteer leader of the Peace Corps, you may choose to suspend the 5-year test period for ownership and residence when you’re on qualified official extended duty. This means you may be able to meet the 2-year residence test even if, because of your service, you didn’t actually live in your home for at least the 2 years during the 5-year period ending on the date of sale.
Qualified extended duty.

You are on qualified extended duty if:
• You are called or ordered to active duty for an indefinite period, or for a definite period of more than 90 days.
• You are serving at a duty station at least 50 miles from your main home, or you are living in government quarters under government orders.
• You are one of the following:
1. A member of the armed forces (Army, Navy, Air Force, Marine Corps, Coast Guard);
2. A member of the commissioned corps of the National Oceanic and Atmospheric Administration (NOAA) or the Public Health Service;
3. A Foreign Service chief of mission, ambassador-at-large, or officer;
4. A member of the Senior Foreign Service or the Foreign Service personnel;
5. An employee, enrolled volunteer, or enrolled volunteer leader of the Peace Corps serving outside the United States; or
6. An employee of the intelligence community, meaning:
a. The Office of the Director of National Intelligence, the Central Intelligence Agency, the National Security Agency, the Defense Intelligence Agency, the National Geospatial-Intelligence Agency, or the National Reconnaissance Office;
b. Any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs;
c. Any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard;
d. The Bureau of Intelligence and Research of the Department of State; or
e. Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.
Period of suspension.

The period of suspension can’t last more than 10 years. Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. You can’t suspend the 5-year period for more than one property at a time. You can revoke your choice to suspend the 5-year period at any time.

[hootiehome]

Thanks for the reply.  That's what I am trying to be exempt from:  the two-year rule.  I have read the excerpt from the IRS website, but having a hard time understanding if it can apply to me.  Since I was active duty when I bought the house, but am now retired.

[AmeliesUncle]

It will help if you give some specific details, such as: 

• Date of purchase
• Exact dates it was used as your main home
• Exact dates it was NOT used as your main home
• Date of sale
• Exact dates of your "Qualified Extended Duty"
• What was the home used for while it was NOT your main home?
• Did you originally move out of the home because you were reassigned?

[Bsch4477]

The rule seems to apply only to those on active duty and not to those who are currently retired. 

[hootiehome]

Thanks for the look.

Date of purchase:  08 Dec 2020
Exact dates it was used as your main home:  From purchase until now.  i was deployed a couple of times during this period, but my family was still in our house.
Exact dates it was NOT used as your main home:  if my deployments do not count, then none.
Date of sale:  scheduled for 27 Oct 2022
Exact dates of your "Qualified Extended Duty":  N/A
What was the home used for while it was NOT your main home:  N/A
Did you originally move out of the home because you were reassigned:  i am selling it because i retired and am moving away.  and i did receive retirement orders.

[Critter-3]

Ok ... I do not see your problem.  If this was your personal residence (even if you were deployed) and had no other personal residence with a homestead exemption on it they you do qualify for the 2 or 5 year ownership/usage test for the exclusion.  The reason you are selling is immaterial. 

[hootiehome]

I have owned the house for less than two years.  That's where I am looking for an exemption. 

[AmeliesUncle]

In your situation, the military has no effect on the sale of the home.

Most likely, any gain will be fully taxable.  However, there are a few certain circumstances that MIGHT change things.  Why are you moving?  Is it is just personal choice, or is there some specific 'reason' for moving (and if there is a 'reason', please give as much detail as possible about that reason)?  For example, some people may move due to a new job in another city (I know you said you are retired, so that may not apply, but I'm just giving an example of a 'reason' why a person may move).

[Critter-3]

Sorry ... I read the 2020 as 2002 ... so you may be allowed a partial exclusion if you cannot push the closing back to the 2 year mark. 

There are exceptions, for "unforeseen circumstances",  to meeting the two year rule, to qualify for a reduced maximum home sale exclusion (just being able to live cheaper would not qualify). 

• a change in your place of employment
• health problems that require you to move, or
• circumstances you didn't foresee when you bought the home that force you to sell it. For example, a death in the family, losing your job and qualifying for unemployment, not being able to afford the house anymore because of a change in employment or marital status, a natural disaster that destroys your house, or you or your spouse have twins or another multiple birth.

References:

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

https://www.law.cornell.edu/uscode/text/26/121

http://www.nolo.com/legal-encyclopedia/qualifying-the-home-sale-exclusion-without-living-in-the-home...

[Carl]

Being military can exempt me from the 2/5 rule. Below is from the IRS website. I am just having a hard time understanding it and how it may apply to my situation. I was active duty when I bought the house, but now I am retired.

That statement as written, is wrong. Just being in the military is not enough. Nobody is exempt from the "2 of last 5" rule.

If you were AD/MIL and moved because you were required to under official orders, then your look back day count is suspended for the period of time you are away under official orders, or a maximum of 10 years; whichever is less. For a retiree, the period of suspension stops on the day you retire as shown on your DD-214.

If the time you actually lived in the property was less than 2 years before moving due to official orders, then you get to take a prorated exemption; not the full amount. As for period of time lived in the property, the IRS counts the days. So to get the full exemption, you must have lived in the property for at least 730 days of the last 1826 days you owned it, counting back from the closing date of the sale. On the count back days, you do not count the days between the date of your orders forcing you to move out of the property, and the retirement date as shown on your DD-214. If that suspension period is more than 10 years, then you can only skip a maximum of 3,652 days (which is 10 years) when counting the look back days.

[Opus 17]

@hootiehome 

You are looking at the wrong set of rules. If you lived in the house and owned it for more than 2 years, and then you delayed your sale while you were on active duty, you could suspend the 5-year rule. You can’t suspend the 2-year part of the rule.

Since you did not own the home more than 2 years, you have to look at the section of publication 523 labeled “do I qualify for a partial exclusion“.  There is no military exemption to the 2-year rule, but there are several other reasons that might qualify you for a partial exclusion.