If you owned and lived in your home for at least two years before it is sold, the law — today at least — is clear: you can exclude from profit up to $250,000 if you are single or $500,000 if you are married and file a joint return.
But what if you have made a profit on your house, but sell it before the magic two years spelled out in the tax law?
In l997, when Congress enacted this favorable legislation, it had absolutely no inkling that the real estate market in the early 2000’s would be so hot, and that so many homeowners would make such large profits on their home sales — even if they did not own their property for the full two years. However, Congress did provide reduced exclusions if prior to holding the property for the full two years, the homeowner had to sell due to a change in employment, health reasons or “unforseen circumstances”.
The IRS has established certain “safe harbors”. If the taxpayer falls within one of these safety zones, they will automatically be entitled to the appropriate exclusion of gain.
Questions? Contact Chris Harvey 602-703-5757