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

[Opus 17]

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@nuges01 wrote:

I have a scenario I'd like to get some clarity on if you'd permit:

My wife and I bought a house in CT on June 7, 2019 for $160k, then in August 2020 we had to move to NJ for new jobs. We figured it was too early to sell after 1 year, so we rented it out instead. We rented it out from August 1, 2020 to July 23, 2021 - which was the day it was sold. We lived in it for a total of just under 14 months, and rented it out for just under 12. (Sale price was $180k if relevant).

After renting it out - in 2020 - we purchased another house in NJ. We sold the CT house in 2021 because of the provision that allows us to move more than 50 miles without incurring capital gains taxes. I am worried though that because we bought another home that we lived in concurrent to renting out the CT home, the CT home would be considered a rental business (or at least not a main home) and would be subject to capital gains. Can anybody shed some light on this for me please?

Thanks

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Review publication 523.

https://www.irs.gov/pub/irs-pdf/p523.pdf

If you moved due to a job change of more than 50 miles, you do qualify for a partial capital gains exclusion.  The exclusion is based on the shorted of three time periods; how long you owned the home, how long you used it as your main home, and how long since the last time you used the exclusion.  In  your case, if it was your main home for 14 months, you would qualify to exclude $145,000, or $290,000 if married filing jointly (14/24 of the usual amount).  

However, as this is also a rental, you have to deal with that fact.  Your 2020 return should have reported the rental income on schedule E, and you deducted depreciation and other rental expenses.  You have to report your 2021 rental expenses on schedule E as well, and you can initiate the home sale from inside the rental interview.  You will have to pay depreciation recapture on the depreciation you took or could have taken, then the next $145,000 or $290,000 of gain will be covered by the exclusion. 

[moving]

We purchased our primary home in November 2020 and have lived in it since then. My wife and I have been working from home as independent contractors since the pandemic started.  I have now been offered a new job about 75 miles away and we are seriously considering accepting it because of the benefits. If I accept the new job, the home sale will take place before the 24 months provision period(approximately 18 months after closing date).  My wife and I know that there will most likely be a gain from the sale, which we understand can be "partially " excluded because the new job is more than 50 miles away from our primary home.

However, my wife asked me a question I couldn't find the answer for.  What happens if the  new job doesn't work out? What if after a while things change and we have to return to the same area we were before? 

[JulieS]

Yes, it sounds like you would be eligible to exclude the gain on the sale of your current home as long as you move at least 50 miles closer to your new work location. 

If you have been taking the home office deduction, you may have to recapture any depreciation you took when you sell it. 

As far as what happens if the new job doesn't work out, that would not affect the exclusion of the gain, but you will not be able to exclude gain on the new home for at least two years. 

[Opus 17]

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@moving wrote:

We purchased our primary home in November 2020 and have lived in it since then. My wife and I have been working from home as independent contractors since the pandemic started.  I have now been offered a new job about 75 miles away and we are seriously considering accepting it because of the benefits. If I accept the new job, the home sale will take place before the 24 months provision period(approximately 18 months after closing date).  My wife and I know that there will most likely be a gain from the sale, which we understand can be "partially " excluded because the new job is more than 50 miles away from our primary home.

However, my wife asked me a question I couldn't find the answer for.  What happens if the  new job doesn't work out? What if after a while things change and we have to return to the same area we were before? 

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The new job has to be 50 miles farther from your home than your old job.  Not just 50 miles away, but a 50 mile-longer commute.  For example, if you were already commuting 25 miles, the new job has to be 75 miles from your old home. 

You can still use the exclusion on the sale of house #1 if the job doesn't work out and you move again.  However, you might not also qualify for an exclusion on the sale of house #2 if you sell the new home in less than 2 years from when you purchased that home, or at best, you would also only qualify for a similar partial exclusion on the sale of home #2. 

There is no time limit for how long you must live in home #2 to take the partial exclusion for home #1. 

[JSel45]

My job was previously remote, however it's in my best interest to move closer to my client (over 50 miles away), however I've only lived in my primary residence for 20 months.

If I move there and claim it's a work related move, and am audited, what would be required from me?

If my current manager does explicitly email me asking me to move to this new location to support this client, is that sufficient evidence for the IRS? 

If I move and sell my house at 22 months, and it is considered sufficient reason to move, will I be prorated for 2 months or would I be completely exempt from capital gains? 

[AamilD]

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, 83%) of the exclusion amount.

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

[Opus 17]

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@JSel45 wrote:

My job was previously remote, however it's in my best interest to move closer to my client (over 50 miles away), however I've only lived in my primary residence for 20 months.

If I move there and claim it's a work related move, and am audited, what would be required from me?

If my current manager does explicitly email me asking me to move to this new location to support this client, is that sufficient evidence for the IRS? 

If I move and sell my house at 22 months, and it is considered sufficient reason to move, will I be prorated for 2 months or would I be completely exempt from capital gains? 

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If you read publication 523, you will see that the safe harbor requires a change in employment location, or other unforeseen change in your circumstances.  The key point is there must be a sudden change in your circumstances that necessitates a move.  If there is no sudden change that compels the move, then you either pay the tax or wait the full 731 days.  

If audited, you bear the burden of proof that the change meets the safe harbor or was otherwise unexpected and unpredictable.  The IRS gives some examples.  For instance, if you have a 2 bedroom house and discover you are pregnant with twins, that might be an unforeseeable event that requires a move to a larger house.  But if you move into a 2 bedroom house already having twins, and find it is so impractical that you need to move, that is not an unforeseen hardship--it was foreseeable that a two bedroom house would be unworkable for a larger family, so it is not an unexpected change in circumstances.  

From your description, it does not sound like this is an unforeseeable or unpredictable change in circumstances, but I don't know all the facts.  If the client previously encouraged remote working and is now insisting that you be closer, that might be something that represents an unpredictable change in circumstances from when you bought the house.   On the other hand, if you provide tech support that occasionally requires a hands on site visit, and you are just now realizing the drive is too long, that's not really an unpredictable change in your employment circumstances (it's the realization that you made a mistake).

[JSel45]

This was the email that my employer provided me:

I wanted to confirm that your new role will be based out of the Seattle, WA area, where you will be working directly with our client and strategic partner, XYZ  Specifically, you will be working both remotely and out of the XYZ office located in Seattle.  I look forward to your continued engagement as you drive closer engagement by working directly out of the XYZ office on a weekly basis. 

Moving from Spokane to Seattle (>50 miles). 

Does the above qualify a partial exclusion and provide sufficient evidence to the IRS?

[Opus 17]

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@JSel45 wrote:

This was the email that my employer provided me:

I wanted to confirm that your new role will be based out of the Seattle, WA area, where you will be working directly with our client and strategic partner, XYZ  Specifically, you will be working both remotely and out of the XYZ office located in Seattle.  I look forward to your continued engagement as you drive closer engagement by working directly out of the XYZ office on a weekly basis. 

Moving from Spokane to Seattle (>50 miles). 

Does the above qualify a partial exclusion and provide sufficient evidence to the IRS?

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The key factor is that this must be an unforeseeable change in your employment circumstances; something you could not have expected when you bought the house.  It helps that it says you have a "new role" but I can't guarantee that will be good enough.  I can't give specific tax advice, or tell you how a given auditor on a given day would take that letter.  If you want someone who will defend you if audited,  you will need to pay for professional representation.  

[JSel45]

Thanks, and understood - I came to the same conclusion. The reason is legitimate and there, it comes down to how it's interpreted. My wife is concerned that it says remote in the email, but I don't think that's an issue - it clearly states there is an expectation I am in the office.

[Sweetness34]

In May of '21 I sold a house that I had lived in for more than 2 years. I purchased a new home for $480k a few days later. I am now selling that home 13 months later because of a job relocation several states away. I am selling the home for $556k. Would this fall under partial exclusion because of job relo? I'm married filing jointly. Thanks.

[Opus 17]

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@Sweetness34 wrote:

In May of '21 I sold a house that I had lived in for more than 2 years. I purchased a new home for $480k a few days later. I am now selling that home 13 months later because of a job relocation several states away. I am selling the home for $556k. Would this fall under partial exclusion because of job relo? I'm married filing jointly. Thanks.

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It seems likely based on your statement.  You can review publication 523 starting on page 6.

https://www.irs.gov/pub/irs-pdf/p523.pdf

[Vmmatch]

Hi!

I owned my home for 14 months, sold my home, and moved to another state. I work remote and have the same job. Does the tax break for capital gains apply to me?

I also got a new second job in the new state, if the above situation didn’t qualify me will this new second job qualify me for the capital gains tax break? 

[Opus 17]

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@Vmmatch wrote:

Hi!

I owned my home for 14 months, sold my home, and moved to another state. I work remote and have the same job. Does the tax break for capital gains apply to me?

I also got a new second job in the new state, if the above situation didn’t qualify me will this new second job qualify me for the capital gains tax break? 

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The physical location of your work must change by more than 50 miles (your commute must be 50 miles longer than before).

If you work remotely for job 1 both before and after the move, your commute did not change and job 1 does not qualify you to claim the partial exclusion.

If job 2 is more than 50 miles from your old home, then job 2 would qualify you to claim the partial exclusion when you sold the old home.   There is no specific time frame required in the law (for example, the law does not require you to have job 2 lined up before you sell the old home).  However, if it was a very long time after the move that you took job 2, you might want to run the situation past a tax professional. 

[AmeliesUncle]

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@Opus 17 wrote:

If job 2 is more than 50 miles from your old home, then job 2 would qualify you to claim the partial exclusion when you sold the old home.   There is no specific time frame required in the law (for example, the law does not require you to have job 2 lined up before you sell the old home).  

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I disagree.  If you are claiming the 50 mile "safe harbor", one of the requirements is "The change in place of employment occurs during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence".

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