Client sold residence for $285,000. basis was 185000. = $105,000. profit. Lived in the house for 1 year. Moved to new location over 2000 miles because of job transfer. Then Bought a new house for $155,000.(more than the profit) Is the 105,000 profit offset by 250, 000 exclusion or excudable because the new house cost is more than the profit or does he have to reduce his exclusion, because he did not live in the house 2 yrs?
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The client should be able to exclude all of the gain (your math is a bit off for your basis, selling price, and profit). The price of the new home has nothing to do with it.
Change in employment is a qualified reason to use the REDUCED exclusion. If the taxpayer used it as his principal residences for exactly one year (365 days) out of the qualifying two year period (730 days) he would qualify for 50% of the $250,000 exclusion, or $125,000. Be sure to count exact days to compute the percentage, and multiply it by the $250,000 Maximum Exclusion (see Worksheet #3 in Publication 523).
http://www.irs.gov/publications/p523...link1000200747
http://www.irs.gov/publications/p523...link1000200866
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