Personal Residence

[S T]

I have a taxpayer that in August 2009, the personal residence was converted to a rental as the taxpayer was placed in assisted/nursing care due to Parkinson's Disease. The conversion was needed to assist in paying for the nursing care.

The 2 out of 5 year rule for a single person $ 250,000 exclusion will not apply if the personal residence is sold in 2016 or 2017.

unless there is an exception due to nursing care? The intent was always for the taxpayer to return home, however, that does not seem to be possible given his current health situation.

Is there any exception on the 2 year out 5 year year occupancy to obtain the $ 250,000 exclusion on sale?

Thanks

Sandy

[Uncle Sam]

Prorated Exemption

There is a prorated exemption if your client fits the "unforeseen circumstances" exception.
Take the $ 250,000 and prorate it by time held (in months) divided by 24 months.
The IRS Pub and even your software should have the calculation formula to plug in the
numbers

[Kram BergGold]

Better Answer I think

Go to

http://realestate.findlaw.com/selling-your-home/the-home-sale-tax-exemption.html

Taxpayer should get the full exclusion as he or she has owned the house for way more than two years and meets the use test I would think based on this site.

[spanel]

Nursing Home Exception: While normally you are required to own and live in the house for two of the last five years, people who end up living in a nursing home can have this requirement lessened to only one out of five years. In addition, time spent in the nursing home counts towards the use test as if it were the original home.

How does this work however since she has rented the house and claim depreciation??

I doubt you can both claim a rental house/depreciation/expenses 5 of last 5 years and capital gains exclusion.

Lastly.. since capital gains rates are maybe 0%... have you calculated what it would be if there where no exclusion?

Chris

[Burke]

I have the same reservation. Had it not been rented, all would be okay. How was the rental treated on the tax return? Income, expenses, depreciation?

[TaxGuyBill]

The taxpayer still needs to have lived there 1 of the last 5 years. If they satisfy that requirement, THEN the time in the nursing care counts.

However, it looks like that does not apply in this scenario, so there is no exclusion.

(7) Determination of use during periods of out-of-residence careIn the case of a taxpayer who—
(A) becomes physically or mentally incapable of self-care, and
(B) owns property and uses such property as the taxpayer’s principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such property as the taxpayer’s principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer’s condition.

https://www.law.cornell.edu/uscode/text/26/121#d_7