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Section 121 - Change In Employment

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    Section 121 - Change In Employment

    Taxpayer owns a home for 1 year and then is transferred to a different work location. The house is vacant for the next 3 years. The taxpayer moves back in for 6 months and then sells the house for a $100k gain. Does Sec 121 exclude the gain from income? Here are my thoughts:

    A) TP does not meet the Use rule (main residence for 2 of the last 5 years prior to sale). The exception for change in work location applies only if the home is sold due to the change in work location (TTB 6-20:

    Taxpayers who do not meet the 2-year ownership and use tests,
    or who have already excluded gain from the sale of another home
    during the 2-year period prior to the sale of a current home, can
    claim a reduced exclusion on the sale of a home if the primary
    reason for the sale is due to:
    1) A change in place of employment of a qualified individual,
    2) The health of a qualified individual, or
    3) Unforeseen circumstances.)

    B) If TP does meet the Use rule, then the Section 121 exclusion is valid, but he would have a period of non-qualified use. Here, a partial exception to the non-qualified use would apply (#3 on TTB 6-21:

    Gain from the sale or exchange of a principal residence is not
    excludable from income if it is allocable to periods of nonqualified
    use. Generally, nonqualified use means any period in 2009 or
    later where neither the taxpayer nor spouse (or former spouse)
    used the property as a principal residence with certain exceptions.
    Exceptions. A period of nonqualified use does not include:
    1) Any portion of the 5-year period ending on the date of sale or
    exchange that is after the last date that such property is used
    as the principal residence of the taxpayer or the taxpayer’s
    2) Any period (not to exceed an aggregate period of 10 years) during
    which the taxpayer or the taxpayer’s spouse is serving on
    qualified official extended duty as a member of the uniformed
    services, the Foreign Service, or as an employee of the intelligence
    community, or
    3) Any other period of temporary absence (not to exceed an aggregate
    period of two years) due to change of employment,
    health conditions, or such other unforeseen circumstances as
    may be specified by the IRS through regulations.

    He therefore would have non-qualified use equal to 3 years minus the exception for a maximum of two years (730 days) = 1 year. The gain would be limited by a factor of 1 year of NQ use / 4.5yrs of ownership = 22.222%. So he could exclude $77,778 of the $100k gain, with $22,222 of the gain taxable due to non-qualified use.

    I realize that #B is not relevant if my interpretation of #A is correct. Anybody know of any applicable case history that interprets the exception to the 2 of 5 years Use Test for those who move due to a work change that shows it would apply not just if the sale is due to the move, but also to a temporary, lengthy period of non-use due to work change?


    Why did he move back for 6 months? The law says that the reduced exclusion applies to sales that "such sale or exchange is by reason of a change in place of employment". If he moved back for 6 months, it doesn't seem like the sale was "by reason of" a change of employment.

    I don't think I agree with your calculations for #B. I interpret "Any other period of temporary absence (not to exceed an aggregate period of two years) due to change of employment" as to mean that if it is over 2 years, it is not "temporary" and NONE of that time is excludable from "nonqualified use". However, that could be open to interpretation.


      Thanks. This link ( is awesome and makes clear that the sale of the home has to be because of the move to qualify for the exception. That's not the case here. As to why he moved back, it was to return to the original work location. His intent was to stay in the house for a few years but after getting back, he decided to sell the house and move to a nearby house a short-time later. The gain was not actually $100k (nowhere near), but it made the math easy for the example.

      The non-qualified use part is moot in this case, but I do see your point. If anyone else knows of an IRS interpretation one way or the other on that, a citation would be great.

      Thanks again,