What is Reduced home sale exclusion?
In short
A homeowner who doesn't meet the 2-out-of-5-year tests because of a change in place of employment, health or other unforeseen circumstances can claim a prorated part of the home sale exclusion.
Key takeaways
- The exclusion is prorated by the months the tests were met out of 24.
- Gain from periods of nonqualified use, such as earlier rental use, may not qualify.
- Depreciation taken after May 6, 1997 is taxable regardless.
Example
A single taxpayer who must move for a new job after 12 months qualifies for $250,000 × 12/24 = $125,000.
Where it's tested
TCP: Individual Tax Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer sells stock at a $10,000 loss on December 10 and repurchases the same stock on December 28 of the same year. What is the tax result?