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Lev, Tax Preparer
Category: Finance
Satisfied Customers: 29558
Experience:  Personal Investment, Tax Preparation
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I am filling out my escrow papers home I'm currently

Customer Question

Hello, I am filling out my escrow papers for the home I'm currently selling California. I need help with what box I should select on this paper. I bought the home in 2010 and only lived there for one year due to military orders. Since then we have not
reside in the residence and it is been five years and we are selling since we will not be returning back to California anytime soon.
Submitted: 1 year ago.
Category: Finance
Customer: replied 1 year ago.
This is the additional page I need help with too
Expert:  Lev replied 1 year ago.

You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home,
As a military person - you can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale.

Here is an illustration - Example. David bought and moved into a home in 2006. He lived in it as his main home for 2 1/2 years. For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. He then sold the home at a gain in 2014. To meet the use test, David choo-ses to suspend the 5-year test period for the 6 years he was on qualifying official extended duty. This means he can disregard those 6 years. Therefore, David's 5-year test period consists of the 5 years before he went on qualifying official extended duty. He meets the ownership and use tests because he owned and lived in the home for 2 1/2 years during this test period.Period of suspension. The period of suspension cannot last more than 10 years. You cannot suspend the 5-year period for more than one property at a time.

Customer: replied 1 year ago.
Hello, thank you for getting back to me. I am still kind of confused sorry for that. By looking at the forum which one what I mark?
Expert:  Lev replied 1 year ago.

If you qualify for that provision - you will exclude the gain from sale - and on that form in Part II - check box 1 - Property is qualified under section 121 as a principal residence.

Customer: replied 1 year ago.
Section 121 excludes us since we are military mood prior? I thought you were allowed to live there for two years with in a 10 year period To be excluded as military?
Customer: replied 1 year ago.
He bought the house in summer 2010 and moved in the summer of 2011. We have not lived there since and have rented it out.
Expert:  Lev replied 1 year ago.

That is correct - but because you moved on the military order - the 5 year period suspended.
Then - because you did not live there for two years - You can exclude gain, but the maximum amount of gain you can exclude will be reduced if you do not meet the ownership and use tests due to a move to a new permanent duty station.
So - the maximum exclusion woudl be not $500k - but only $250k as you lived there one year - not two. So - we need to deal with the amount of your gain.
Another issue - as you mentioned - the property was rented - correct?
In this case - the amount of depreciation recapture (allowed or allowable) may not be excluded under section 121 - and will be added to taxable income - and you do NOT qualify for the full exclusion - and may NOT select any of these boxes.
But must provide computation for estimated gain or loss.