Question

We sold our home prior to 2 years due to unforeseen circumstances (an attempted break in.) IRS 523 says we get a prorated exclusion on the gain, but your software says no

Forum|Forum|7 years ago
June 6, 2019
4 replies
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When I read "IRS Publication 523, Selling Your Home" it sounds like we get a prorated exclusion on the gain (lived there for 20 months), because it was due to unforeseen circumstances (my wife was accosted outside our house, ran inside, and the person tried to break in.) Due to unforeseen safety concerns we decided to sell our home. I believe that the gain on the sale should be excluded, but when I answer the questions in Turbo Tax the software says that we don't and owe taxes on the gain. I'm confused. Please help

TurboTax Premier Windows

M

mpg2719Author

Thanks. I used that link to determine that I believe our situation applies. Is there a place that I detail out the rationale for unforeseen circumstances. The software seems to just have me check a box?

IsabellaG

Employee

If you want to include a statement with your return, you'd have to print out your return and mail it with the attachment instead of efiling. You may want to just efile without an attachment, and just be prepared to explain your situation IF the IRS ever questions it.

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B

Brealey

We bought our home 20 years ago and five years ago we had to rent it out because of personal reasons that fall in the 'unforeseen circumstances'. We were hoping to move back but cannot because of these 'unforeseen circumstances'. Now, we have to sell because of these circumstances. I cannot find in turbo tax where I can check this off, where is this located in Turbo-Tax. I am planning on sending documentation with our taxes to show why we had to rent and then sell. Hoping we do not have to pay capital gain tax? But, where do I put this in Turbotax? We can roll-over the income into a new home to live in, but it will not be a rental (like for like exchange), the only reason we rented our home out in the first place was because of this unforeseen circumstance and now have to sell...

D

dmertz

Employee

Brealey, even if you meet the unforeseen circumstances criteria, you do not qualify for any exclusion because at no time did you reside in the home during the last 5 years (assuming that your statement to that effect is accurate).

IsabellaG

Employee

There is a choice in this section that lets you claim "other unforeseen circumstances" on the screen Other Reasons for Sale.

In general, the reasons listed specifically have been listed in Treas. Reg. § 1.121-3(e)(2). Not every possible circumstance is listed, and there is no guarantee that the IRS will agree that your situation qualifies. This is a judgement call that you have to make.

See this link, under the discussion of unforeseen circumstances.http://www.journalofaccountancy.com/issues/2009/nov/20091783.html

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M

mpg2719Author

Thanks. I used that link to determine that I believe our situation applies. Is there a place that I detail out the rationale for unforeseen circumstances. The software seems to just have me check a box?

Hal_Al

Employee

@mpg2719 - No, there is nowhere to provide details of the reason for your exception. The "check box" is all you have to do to file. An explanation is only needed if there is an IRS inquiry.

Carl11_2

Employee

If I understand your post correctly, it sounds to me like you did not live in the house for one single day as your "PRIMARY" residence for the last 5 years you owned it, counting back from the date of the closing on the sale. If so, then you don't qualify for any kind of tax exclusion under *any* circumstance. In other words, there is no special circumstance that will apply here, and any and all gain realized will be fully and completely taxable.

So if this is true then you can do the paperwork if you want. But your chances of getting the exclusion or any part of it, are zero percent.