Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.
Good evening. The key is whether you meet the ownership and use tests under the code to qualify for the $250,000 ($500,000 if married) exclusion from capital gain from the sale of your principal residence (gain being the sale price less your basis). Since it was your principal residence, you satisfy the use test, but in order to qualify for the use test, you must have lived there for at least 2 years. Even though you have not lived there for 2 two years, you may still qualify for a reduced exclusion if the sale of your main home was due to one of the following reasons: 1) A change in place of employment; 2) Health; 3) Unforeseen circumstances.
Pursuant to IRS Publication 523: The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying that home. You are not considered to have an unforeseen circumstance if the primary reason you sold your home was that you preferred to get a different home or because your finances improved. The IRS has set forth specific event safe harbors. Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home.
An involuntary conversion of your home, such as when your home is destroyed or condemned.
Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible.
In the case of qualified individuals (listed earlier under Qualified individual ):
Unemployment (if the individual is eligible for unemployment compensation),
A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses , below) for his or her household,
Divorce or legal separation under a decree of divorce or separate maintenance, or
Multiple births resulting from the same pregnancy.
You can see a full discussion of this at: http://www.irs.gov/publications/p523/ar02.html#en_US_2012_publink1000200747
With regard to any gain you do have, it will be long term capital gain. As such, it will be taxed at the following applicable rate: i) any long-term capital gains that fall in the 15% tax bracket or below will not be taxed; ii) long-term capital gains that fall in the 25%-35% tax brackets will be taxed at a 15% rate; and iii) long-term capital gains that fall in the new 39.6% tax bracket (which kicks in whenyour taxable income
is above $400,000 if single and $450,000 if married filing jointly
) will be taxed at a 20% rate.
This is the part of my job I don't like...when the law
is not in favor of my customer. I wish I could tell you there would be no long term capital gain tax no matter what, but, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!
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