Section 121 Exclusion: Continuing Education

[tayhowes]

Good day,

I am considering selling my home after 1y 6mos of residence for a change in employment. Treas. Reg. §§ 1.121- 3(c) states that the new location of employment must be 50+ miles from the place of residence. In my situation, I would be leaving my full-time job to continue my education (post-grad) full-time at a school across the country. This was certainly an unforeseen circumstance for me, but don’t know how the IRS views it. Does a change of employment to pursue education full-time qualify as a change of employment or “unforeseen circumstance” as stated in Section 121 to reduce the maximum exclusion? Any insight is greatly appreciated. 

Thanks!

[Mike9241]

getting an education is not a job. so if you don't have a job in the new location that meets the job relocation criteria, you would not qualify for the job move exclusion.

the unforeseen circumstance exception would have to be due to an event the IRS determines to be an unforeseen circumstance.  there is no way for us to know how the IRS would look at this.

there is also another possibility facts and circumstances - If you don't meet the safe harbor tests then under REG 1.121-3(b) you may still qualify

Whether the requirements of this section are satisfied depends upon all the facts and circumstances. Factors that may be relevant in determining the taxpayer's primary reason for the sale or exchange include (but are not limited to) the extent to which -

(1) The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time;

(2) The suitability of the property as the taxpayer's principal residence materially changes;

(3) The taxpayer's financial ability to maintain the property is materially impaired;

(4) The taxpayer uses the property as the taxpayer's residence during the period of the taxpayer's ownership of the property;

(5) The circumstances giving rise to the sale or exchange are not reasonably foreseeable when the taxpayer begins using the property as the taxpayer's principal residence; and

(6) The circumstances giving rise to the sale or exchange occur during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence.

I should have added that the job change exclusion depends on the fact that the principal reason for the move is a change in job locations.  I really don't think that moving to get additional education would meet this criterion 

unless someone posts that moving to get an education qualifies under either the safe harbor job location change or unforeseen circumstances, I suggest you consult with a tax pro.  they can look at your situation and do further research.  in the end, they may be unsure and suggest that you get a private letter ruling. 

[rjs]

The factor that concerns me is that the circumstances causing you to sell the home have to be not just unforeseen, but unforeseeable. That's a higher hurdle.

Section 1.121-3(b)(5), included in what Mike9241 quoted above, says "The circumstances giving rise to the sale or exchange are not reasonably foreseeable when the taxpayer begins using the property as the taxpayer's principal residence." [emphasis added]

Section 1.121-3(e)(1) says "A sale or exchange is by reason of unforeseen circumstances if the primary reason for the sale or exchange is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence." [emphasis added]

It's not clear to me that you meet this requirement. The wording of the regulations suggests to me that it requires something that happened to you because of external forces that were not under your control, not something that you chose to do. When you bought the home, did you really have no idea that you might go to graduate school? If you even thought about it, it was not unforeseeable.

But your situation is unusual and unclear. I agree with Mike9241 that you should consult a tax professional.

[tayhowes]

Great insight on the unforeseeable clause. I will certainly consult a professional. I was just curious to know if anyone knew anyone in the same boat who were able to meet the reduced exclusion requirements. I think the best way might be for my spouse to seek employment in the new location prior to the sale. 

[tayhowes]

Thanks for your insight!