Tuesday, August 2, 2016
Private Letter Ruling 201628002
Tax Law Background
A taxpayer can exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from the sale or exchange of a home owned and used by him/her as a principal residence for at least two of the five years before the sale.The full $250,000/$500,000 exclusion does not apply if, within the 2-year period ending on the sale date, there was another home sale by the taxpayer to which the exclusion applied, but the taxpayer may still be eligible for a reduced maximum exclusion when his/her failure to satisfy the ownership and use requirements is primarily due to the occurrence of unforeseen circumstances
Facts: Taxpayers were married and had a daughter when they first purchased their residence. Their residence is a condominium with two small bedrooms and two baths. The child's bedroom also served as the Husband's home office as well as a guest room. After the purchase of their residence, the Wife became pregnant and gave birth to a son. The taxpayers moved out of within the 2 year exclusion period and purchased a new residence.
The taxpayers requested a ruling that the gain on the sale of their residence may be excluded under the reduced maximum exclusion.
The Private letter Ruling concluded that the occurrence of unforeseen circumstances was the primary reason for the sale and that the suitability of their residence materially changed. Accordingly, the gain on the sale of residence can be excluded under the reduced maximum exclusion of gain.
Note that a Private Letter Ruling applies specifically to that taxpayer’s situation. It does not establish a safe harbor for all taxpayers. It does however; give taxpayers in similar situations the opportunity to request their own Private Letter Ruling to determine if they can qualify for the reduced principal residence exclusion under the unforeseen circumstances test.
Greg Nelson, CPA, MBT; Ryan Kelly, CPA, MBT; Mark Angell, CPA, MBT
Olsen Thielen CPAs
August 2, 2017
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