The Internal Revenue Service has issued regulations to clarify a 1997 law that allows taxpayers who sold their home before living in it for two of the past five years certain exemptions.
The law provides that a homeowner who did not meet the two-year requirement might be eligible for a partial tax exclusion if the homeowner had to sell because of health reasons, a job change or "unforeseen circumstances."
Tax lawyer Julian Block said residents who sell their homes because their place of work changed automatically will qualify for a partial exclusion of profit on a home sale if the taxpayer's new place of work is 50 miles farther from the old home than the former workplace was.
The exclusion, he said, is based on how long the taxpayer owned and lived in the home before selling it. For example, a taxpayer who would be entitled to a $250,000 tax exclusion if he sold the home after two years will be entitled to a $125,000 exclusion if he sold it after one year and met the requirements for the reduced exclusion.
Block said the IRS held that a sale made for health reasons is eligible for a reduced exclusion if the taxpayer has a disease, illness or injury.
The IRS said "unforeseen circumstances" include death, divorce or separation; eligibility for unemployment compensation; a job change that leaves the taxpayer unable to pay the mortgage or reasonable basic living expenses; and multiple births resulting from the same pregnancy. Also, damage to the residence resulting from a disaster caused by nature, humans, an act of war or terrorism, or the condemnation, seizure or other involuntary loss of the property.