You may be aware that you can avoid capital gains taxes on the sale of your home if it was your primary residence for at least two of the five years prior to its sale. Individuals may qualify for a $250K tax exemption, and married couples up to $500K.
But life is funny, and sometimes throws you a curve ball you weren’t expecting. What if you’ve moved into your “forever home,” and suddenly get laid off from your job, or need to move for unforeseen family or health reasons? Do you lose your big exemption from profits just because you couldn’t remain in your home for two years?
The happy answer is no, not completely. Even the IRS understands unforeseen circumstances, and under Internal Revenue Code 121, you can get a partial credit for the time you’ve lived in your home before having to sell and move.
Then your exemption is based on the number of months (out of the twenty four) that you remained in your principal residence. If you have to sell after 18 months, you will qualify for 18-24ths, or 75% of the total $250K or $500K exemption.
The rules may seem complicated, but with the assistance of your tax adviser and a trusted real estate professional, you can maximize your savings and locate your next home with a minimum of aggravation.
