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Exclusion from Gain on Sale of Home for Unforeseen Circumstances

Taxpayers who have owned and used a home as their principal residence for at least two of the five years leading up to the sale can exclude up to $250,000 ($500,000 if married filing jointly) of the gain when they sell the home. Taxpayers who don’t meet these conditions can qualify for a reduced exclusion if the sale is because of a change in place of employment, health, or unforeseen circumstances.

Unforeseen circumstances are events the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. The regulations define several specific-event safe harbors as unforeseen circumstances, and include:

  1. multiple births
  2. divorce or legal separation
  3. eligibility for unemployment compensation
  4. death of the taxpayer, spouse or co-owner, or a member of the household
  5. destruction or condemnation of residence
  6. casualty loss due to a natural or man-made disaster or an act of terrorism

Unforeseen circumstances, outside of the specific-event safe harbors listed above, depend on the facts and circumstances. In general such circumstances include an increase in the number of dependents living under one roof, environmental factors such as crime or noise, or job-related factors.

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