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Retaining homeowner capital gain exclusion

I know that homeowners can get a significant exclusion of capital gain arising from sale of the home. What happens when ownership is retained but owners have to move out because of medical or psychological necessity?

Almost two years ago, I moved out of our home. Although not legally blind, my vision prevents me from driving and taking care of myself. I moved into a independent living facility that provides shelter, food, and modest transportation.

How will that affect my capital gain exclusion upon home sale? Is that treated in any way other than as if I moved out for non-medical reasons?

It now appears that my wife may also have to move out for similar reasons. If both of us live too long, does that mean a loss of the capital gain exemption upon ultimate sale?

Reply to
Salmon Egg
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The basic rule is that you get the exemption if you have lived there two years out of the last five. You can count up to two years of not living there if you were away temporarily for health or employment issues.

If you lived there for two of the prior three years before you moved, you won't have a problem in any case. If you establish that you had to move for a medical reason, the two years should count as if you were still living there during that time.

Assuming you sell the house within the next year, you don't even need to worry about the exception - you get the exclusion. If it takes longer, you may still get the exclusion.

If you wait too long to sell it, yes, you could ultimately lose the exclusion.

Reply to
Stuart Bronstein

Stuart: You seem to have created a new rule or misinterpreted the rule. You get the full exclusion if you meet the two years of ownership AND the two years of use as your main home rules. You can count short temporary absences for vacation as use... even if you rent the home for the short period. If you move out for health reasons, then you can not count those days of absence. If you fail the two year of use rule because of health, or a change in employment or for an unforseen circumstance, you may be eligible for a REDUCED exclusion.

There is an exception to the above for individuals who are mentally or physically incapable of taking care of themselves and can show use as their main home for at least one year out of five. The law allows you to count days that you live in a facility that is state licensed to provide the care required. Typically, this is an assisted living or nursing home. Typically, it is not an independent living facility. That's not to say that there may be independent living facilities that are providing some level of care that can not be met at your own home. Where I live, the independent care facilities are part of a larger complex that includes assisted living and sometimes skilled nursing. The tenants in the independent living facility are there because they are 1. able to care for themselves and 2. want access to the assisted living and/or nursing facility should their health change and they can no longer care for themselves.

Reply to
Alan

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