My husband and I bought our house on Feb 1, 2000. The subdivison we are in has really taken off. Our builder can build us a bigger house on a better lot for approximately the same price. We should make about$110,000 profit on our current home. We plan to move into our new house in May, 2001. We would have owned and lived in our house for about 485 days. Can we exclude the $110,000 capital gains we made on the first house? I have seen things about having to live in your house for two of the past five years. I understand about the two years, but what does five years have to do with anything?The 5 years gives added flexibility. You need not have owned and lived in the house for the 2 years immediately preceding the sale, just for a total of 2 years within the 5 year period preceding the sale. You don't qualify, having lived in the house for less than 2 years total (prospectively at the planned time of sale). Proration of the exclusion for periods less than 2 years is only available if the move is due to a change in employment, health, or unspecified "unforeseen circumstances." I don't believe Congress had "a better house and a windfall gain" in mind when they wrote "unforeseen circumstances."If you're intent on having the new home but not paying tax on your gain, you could buy the new one, rent it out until you satisfy the 2 years in the old one, and then sell the old one and move into the new one. When you sell the new one some day you'd owe some depreciation recapture, but it wouldn't be for a long period of time.Frankly I'm a little confused. Barely 6 months ago you wanted to live in your current home. While I appreciate the lure of something for nothing, I can't figure out why you want to move. Maybe it's just that I abhor the moving process.TMF ExROPhil Marti
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