move to live near daughter
When my in-laws retired due to age and health
considerations, they moved to be close to us so my wife could help
them. However, after one year my company relocated me to another
city. As a result, they moved to stay close to us. When they sold
their home (which they lived in for about 12 months), the price
went up by about $25,000.
Are they responsible to pay a capital gains
tax on this amount, since they didn't live there for two years?
Do they meet the special circumstances that would exempt them? Other
info: They used the proceeds to buy a new home; they are over 65
years of age. Please advise.
A married couple can exclude up to $500,000 in
gain from the sale of their principal residence if they have lived
in and owned the home for two years within the last five years.
The age at time of sale or the reinvestment of the sale proceeds
does not matter in determining if they can exclude gain.
A lesser amount of gain (approximately $20,000 a month
for every month lived in the home) can be excluded from income when
the two-year minimum is not met but the reason the home was sold
a. a change in place of employment,
b. health, or
c. unforeseen circumstances
Although you would qualify under the change in employment
exception, your in-laws would not fall into that exception category.
A sale for health or unforeseen circumstances (whichever applies)
is considered to be the reason they sold their home if either of
the following is true:
- The sale qualifies under a "safe harbor."
A safe harbor is a set of certain facts and circumstances that
qualifies them to claim a reduced maximum exclusion.
- The primary reason they sold the home was health
or unforeseen circumstances and the facts and circumstances surrounding
the sale support this conclusion.
The sale of their home would be because of health
if the primary reason for the sale was to obtain, provide or facilitate
the diagnosis, cure, mitigation or treatment of disease, illness
or injury of themselves. Health is considered to be the reason they
sold their home if, for one or more of the reasons listed in the
preceding sentence, a doctor recommends a change of residence. A
doctor-recommended move is considered a safe harbor, and I hope
they can use this to obtain their reduced exclusion.
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