Prorated capital gains tax exemption?

Question

I was wondering if anyone knows if the 250k or 500k for married couple capital gains tax exemption can be prorated?

I’ve lived in my house for 6 months but it’s gone up in value $100,000 and capital gains would make or break if I would sell or not.

My tax guy says since I just got married, then the 500k prorated over the 2 years comes to roughly 20k per month that I’ve lived there which would make me exempt from paying capital gains up to 120k.

Can anyone give me some insight on this? I’ve gotten so many different answers to this question.

Natalie Kolodij · Answer

Michael nailed it.

There are IRS qualifying "exemptions" such as moving over 50 miles away for work, ect That allows a proratio of the max gain you're allowed to utilize

Michael Plaks · Answer

@Austin Eberle

There is no-proration other than a sale due to change of employment, health reasons or unforeseen circumstances. I suspect that your marriage does not qualify as "unforeseen" 6 months prior.

Ashish Acharya · Answer

If the property's suitability as the taxpayer's principal residence materially changes, then it might qualify for the unforeseen circumstance. Such as: getting married and or having kids (having triplets vs. one).Known condition does not qualify as an unforeseen circumstance:

Nancy buys a house that she uses as her principal residence. The property is located on a heavily trafficked road. Nancy sells the house nine months later because the traffic is more disturbing than she expected. Nancy is not entitled to a partial gain exclusion since none of the safe harbors apply and the traffic is not an unforeseen circumstance because Nancy could have reasonably anticipated the traffic when she bought the house.

Variation: Nancy purchased the house on a bystreet that was not well-traveled. However, two months after she purchased the home, road construction on a major nearby street detoured traffic through her neighborhood, causing excessive noise. Nancy was not informed about the upcoming road construction when she purchased the house. The excessive traffic is an unforeseen circumstance because Nancy had no reason to expect traffic conditions to change so quickly. (See Ltr. Rul. 200702032.)

Austin Eberle · Answer

@Natalie Kolodij

Hi Natalie, is the 50 mile rule a direct distant or from the shortest way using roads? My wife works 45 mile away from work using downtown roads but 53 miles when she takes the quickest way to work.

Austin Eberle · Answer

@Michael Plaks

Hi Michael, thank you for the insight! I purchased the house and then the next day used it to propose to my girlfriend who’s now my wife. Could that be considered a “sudden change?”

My wife also has moved into the house with me now and she works 45 miles away if she takes the downtown roads, but 53 miles away if she takes the quickest way without traffic. Would this allow for an exemption? She had that job before we got married though…

Prorated capital gains tax exemption?

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