Partial Exclusion for Capital Gains on Sale of Real Estate

Education & Training with Jody Bruns, LLC NMLS 831033

Did you know your sellers might not be totally out of luck with regards to their Capital Gains Exclusion if they sell within 2 years of purchase?


We all know you have to live in your home for 2 of the previous 5 in order to use your full exclusion of $250,000 single or $500,000 married on the Capital Gains in the sale of real estate. However, did you know that even if you don't meet all the home-sale exclusion tests, your tax break might not be totally lost.


When an owner sells a house because of special conditions, such as a change in health, employment or unforeseen circumstances such as divorce, he or she is eligible for a prorated tax-free gain.


In such a case, the seller first calculates the fractional amount of time that he or she met the 2-year use test. For example, a single homeowner is transferred to a job in another city and sells after being in the home for only a year and a half. That would be an occupancy period of 18/24 or 0.75, the number of months lived in the home divided by 24, the number of months in the 2-year occupancy requirement. By multiplying the full $250,000 exclusion amount by 0.75, the seller would be eligible to exclude a sale gain of up to $187,500.


Hopefull this short blog post will be a valuable tidbit in your toolbox of knowledge!





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Jody Bruns, CDLP

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