Hi muff1234,
There's no need to sell your home now if you don't want to. As a
Foreign Service Officer, you are eligible to suspend the test period.
In other words, while you are away your test period will be put on
hold and when you return you will be able to pick up where you left
off - in seven months you will be eligible for the full $250,000
exemption. You could, if you prefer, claim a partial exemption now
because of your "change in place of employment". You can read all
about it (including Worksheets) and have all of your questions
answered in IRS Pub. 523.
IRS: Publication 523; Cat. No. 15044W: Selling Your Home:
The Home Sale Gain Exclusion:
Page 12:
* Maximum Exclusion: Ownership and Use Tests: Period of Ownership and Use:
"The required 2 years of ownership and use during the 5-year period
ending on the date of the sale do not have to be continuous. You meet
the tests if you can show that you owned and lived in the property as
your main home for either 24 full months or 730 days (365 x 2) during
the 5-year period ending on the date of sale."
Page 12/13:
* Members of the uniformed services or Foreign Service:
"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 uniformed services or
Foreign Service of the United States. 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."
"Period of suspension. The period of suspension can not last more than
10 years. You cannot suspend the 5-year period for more than one
property at a time. You can revoke your choice to suspend the 5-year
period at any time."
* Foreign Service member:
You are a member of the Foreign Service if you are any of the following:
? A Chief of mission.
? An Ambassador at large.
? A member of the Senior Foreign Service.
? A Foreign Service officer.
? Part of the Foreign Service personnel.
Page 14:
* Reduced Maximum Exclusion:
"You can claim an exclusion, but the maximum amount gain you can
exclude will be reduced if either of the following is true.
1) You did not meet the ownership and use tests, but the primary
reason you sold the home was:
a) A change in place of employment,
b) Health, or
c) Unforeseen circumstances (as defined later).
Use Worksheet 3 to figure your reduced maximum exclusion."
http://www.irs.gov/pub/irs-pdf/p523.pdf
I hope I've help to sort this out for you. If you have any questions,
please post a clarification request before closing/rating my answer
and I'll be happy to respond.
Thank you,
hummer
Search Strategy
I searched the IRS website.
Google Search: "home sale gain exclusion" |
Clarification of Answer by
hummer-ga
on
11 May 2004 10:04 PDT
Hi muff1234,
There are two factors to consider: why you are moving, and, renting the house.
1) Moving: your reason would be change in place of employment.
2) Renting: you must meet the use test to qualify for the exemption.
MOVING:
Page 14:
Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of gain you can
exclude will be reduced if either of the following is true.
1) You did not meet the ownership and use tests, but
the primary reason you sold the home was:
a) A change in place of employment
Change in Place of Employment
The sale of your main home is because of a change in place of
employment if your primary reason for the sale is a change in the
location of employment of a qualified individual.
Employment.
For this purpose, employment includes the start of work with a new
employer or continuation of work with the same employer.
Distance safe harbor.
A change in place of employment is considered to be the primary reason
you sold your home
if :
1) The change occurred during the period you owned and used the
property as your main home, and
2) The new place of employment is at least 50 miles farther from
your home than the former place of employment was.
http://www.irs.gov/pub/irs-pdf/p523.pdf
>>>>>>>>>>>>>>>
RENTING:
If you rent it out, you must meet the tests (which you don't) in order
to claim the exemption. You would be able to claim the full exemption,
but would have to subtract any depreciation claim from the exemption.
For example, if you sold your home with a gain of $50,000 and you were
going to claim a $5,000 depreciation while it was rented, then the
amount of your exemption would be reduced to $45,000. However, in
order to do that, you would have to come home and live in the house
for seven months to qualify.
Page 16:
Business Use or Rental of Home:
"You may be able to exclude your gain from the sale of a home that you
have used for business or to produce rental income. But you must meet
the ownership and use tests."
http://www.irs.gov/pub/irs-pdf/p523.pdf
Summary:
1) Move because of employment
2) Rent out the house while you are away
3) Move back into your house for seven months to complete your use
test (can be done because you are a Foreign Service Officer).
4) Exemption would equal up to $250,000 gain less any depreciation claimed.
Or
1) Move because of employment
2) Sell your house
3) Apply for a Reduced Maximum Exclusion
Please do look at the .pdf that I found for you. You know your
situation better than I and it gives examples to help sort things out.
Have a safe journey!
hummer
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