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Have the children blown their exclusion by moving in with elderly parent and staying as long as they did?

Probably. However, they might be able to sell a prorated exclusion to a sypathetic auditor who was in a good mood. Warning: what follows is pretty agressive.

The law says that a prorated exclusion applies if the move was due to a change in health, employment, or other unforeseen circumstances as prescribed by regulation. Since the IRS hasn't issued such regulations 4 years and counting after the law was enacted, I don't think it's totally unreasonable for people to start defining them for themselves.

Also, the law makes no connection between the home gain exclusion and the employment requirements for deductible moving expenses. Thus, if one of you spent a week as a Stepford Greeter at Wal-Mart in Florida, there you have a change in employment.

Phil Marti
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