Reduced Exclusion

You might qualify for a partial exclusion of gain on the sale of your home even if you don't meet the two-year rules, if the reason that you can't meet them is because you suffered a "change in place of employment, health, or unforeseen circumstances."

You can establish that you are selling your home due to a change of place of employment, health or unforeseen circumstances in one of two methods. First, if you qualify under a "safe harbor," you meet that test. But, even if you can't find a safe harbor, you can qualify if you establish sufficient "facts and circumstances" to satisfy the IRS that the sale was tied to your health, your employment location or unforeseen circumstances.

Planning Tools You can compute a partial exclusion by using this reduced exclusion worksheet. At this time, though, it is unclear whether the reduced exclusion will apply when a home acquired in a like-kind exchange does not meet the five-year ownership period due to one of the special circumstances.

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