Partial Capital Gain Exclusions on Your Home

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Partial Capital Gain Exclusions on Your Home

You must have lived in a home for a total of two years out of the five years immediately preceding the sale in order to get your capital gains sheltered from taxes. But what if you didn’t live there for at least two years? Luckily, you can qualify for a partial exclusion if you sell the home due to a change in your employment, health reasons, or unforeseen circumstances.

Change in your employment

If you start a new job and have to move, or if your employer moves you to a new location, you can qualify for the partial exclusion.

Health reasons

You can get the partial exclusion if you sell your home for health reasons. It’s a good idea to have documentation for these reasons in case the IRS questions you.

Unforeseen circumstances

According to the IRS, an unforeseen circumstance is "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home." The IRS lists examples of these events; they include terrorism, divorce, and death, among others.

IRS publication 523 covers these situations in more detail. If one of them is particularly relevant to you, the publication can help you determine whether your situation is valid.