Residence-2 out of 5 years

[Bird Legs]

Clients boutght & moved into home and has lived there for 19 months. Now wanting to sell
and move out of state.
He is asking if he has a purchaser who, instead of buying , will sign a lease agreement,
allowing client to continue living there until the 2 yr requirement is met and then buy the house after the 2 yr. period. The lease agreement will require client to sell to them
at that time.
Will this be sufficient to qualify for the 250,000 tax free gain?
Or will the lease agreement be considered an equivalent to a sales contract?
Any comments, pro or con, will be appreciated.

[JG EA]

Or will the lease agreement be considered an equivalent to a sales contract?
Any comments, pro or con, will be appreciated.

Section 121(a) provides that a taxpayer may exclude gain realized on the sale or exchange of property if the property was owned and used as the taxpayer’s principal residence for at least 2 years during the 5-year period ending on the date of the sale or exchange.

Since your client will have used the residence then "Was owned" is the key. If your client really owned the home for 2 full years (had title), had the danger of losing the deal if the buyer changed his mind, then I would think it would qualify.

[dsi]

Set up a five month escrow (or however long it takes for your client to meet the 2 year period).

[Kram BergGold]

Moving

You say client is moving out of state. Any chance this move is more than 50 miles and job related. If so client gets a partial 19/24 exclusion which amounts to about a $200,000 exclusion if single and $400,000 if MFJ.

[Bird Legs]

Moving out of state

This is not a job related move, even though more than 50 miles.
Just wants to get closer to family.
Thanks for reminding me of that though.