By Patrick J. Crowley
Regular readers of the Tax Minute know that, under Section 121 of the Internal Revenue Code, you can exclude from taxable income the gain of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly on the sale of the primary residence that you have lived in for 2 out of the last 5 years. However, what many of these listeners don’t know is that there are a whole bunch of exceptions to the 2 out of 5 year rule which will enable you to take this exclusion. The IRS states you can take this exclusion if the primary reason for the sale is the occurrence of unforeseen circumstances. In a recent private letter ruling, the IRS stated that a couple who had 1 child when they purchased a 2 bedroom condo as their primary residence who later had a son prior to meeting the 2 year rule qualified for the reduced maximum exclusion of the gain from the sale of their home as they met the definition of unforeseen circumstances. If you sold your primary residence for a gain and lived their for less than 2 out of 5 years, I suggest you call me on the Tax Line to see if you may have a situation that meets the definition of unforeseen circumstances so that you may be able to avoid tax on the sale of your home.