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March 14, 2023
Question

Capital Gains - Unforeseeable Event Partial Exclusion

  • March 14, 2023
  • 1 reply
  • 0 views

Hello,

 

My wife and I decided to sell our home in Feb of 2022 due to her work environment becoming toxic and her employer showing signs of going out of business. As she would either be quitting in a few months or her employer going under, we decided to sell our home and were able to complete the sale in May of 2022. At the time of the sale, we had been living in the home for just over 1 year and would be subject to capital gains tax.

 

I am curious as to whether we could apply the partial exclusion to capital gains on the home sale as our circumstances may fit the "unforeseeable events" criteria since we sold our home with the plan to downsize due to the upcoming loss of my wife's job. We would not have been able to pay our bills and living expenses on my salary alone. I believe this is an appropriate application of the unforeseeable events clause, however I'm not sure if us being proactive in the sale rather than waiting for the loss of her job would disqualify us (she did end up leaving the company in June due to the toxic environment, and the company let the remaining employees go weeks later).

    1 reply

    March 14, 2023

    Yes, based on the information you provided, it would appear you qualify for the whole or partial exclusion. TurboTax will walk you through the process, to determine the amount. Please see Is the money I made from a home sale taxable?

     

    According to IRS Publication 523, Page 6, Other facts and Circumstances: Even if your situation doesn’t match any of the standard requirements, you still may qualify for an exception. 

     

    You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are:

    • The situation causing the sale arose during the time you owned and used your property as your residence.
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    tjv12Author
    March 14, 2023

    Great, thank you!