Tax relief allowed on home sale after short residency

Real Estate Watch

October 19, 1997

The new tax law recently passed by Congress revamped the way capital gains are treated when a homeowner sells his home and realizes a profit.

Under the new law, those homeowners who file single federal tax returns are allowed to exclude up to a $250,000 gain realized on the sale of a principal residence; married couples are allowed up to $500,000.

The only requirement is that the homeowners have owned and used the home as a principal residence for at least two years during a five-year period.

But what happens if a homeowner is forced to sell because of an employment transfer or health reasons before the two years is up?

Mark Watson, a personal financial planning partner with KPMG Peat Marwick in New York, said those homeowners can still enjoy some tax relief.

"There are provisions in the new tax law that allow for special circumstances," he said. "The circumstances that apply include a change in place of employment, a move due to health considerations and other 'unforeseen circumstances' that have yet to be spelled out by the IRS."

Watson gave this example:

"Mr. and Mrs. Jones live in a house for one year until Mrs. Jones learns from her employer that she's being transferred to a different city. The Joneses move and sell their house for a $50,000 gain. Because the time they spent in the house is only half of the required two years, the amount of gain they are allowed to exclude is limited to one-half, or $25,000. They will have to pay tax on the other half."

Pub Date: 10/19/97

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