Partial Home Sale Tax Exclusion due to Unforeseen Circumstances

[aedwan]

Due to COVID-19, taxpayer and spouse had to sell their home, which they bought 6 months ago, and move in with parents to help with childcare because they couldn't manage, especially with both working remotely full time while taking care of two children full time. Does this life event (Triggered by COVID-19) constitute unforeseen circumstances safe harbor  to qualify for the Reduced Maximum Exclusion? How can deduction be substantiated? 

[Just-Lisa-Now-]

If COVID hadn't happened, what would their situation be?  Did they only move for childcare?

How much did the home increase in value in 6 months?

[aedwan]

Thanks Just-Lisa-Now-

If COVID hadn’t happened, they would have not sold the house and the children would be sent to a daycare facility. Their decision to move in with the parent for childcare. The home increase $80,000 in value. 

[Just-Lisa-Now-]

I really dont have much experience with this,  @TaxGuyBill  or @BobKamman  may have more to offer here.

80k in 6 months is a big jump...did they make improvements or did they just get a screaming deal when they bought it?

[TaxGuyBill]

Do the parents (and your clients now) live in a different city?  If so, I would claim it as Unforeseen Circumstances.

If the parents are within reasonable driving distance of their old house, something seems amiss and I can't see it.  Clients were probably already commuting to work and driving the children to daycare, so driving to the parents (essentially a daycare) wouldn't really be a need to sell the house.

But Unforeseen Circumstances is a facts-and-circumstances thing.  So it just depends on those details.

[rbynaker]

See if you can find a situation in the Regs that works:

https://www.law.cornell.edu/cfr/text/26/1.121-3

[aedwan · Accepted solution]

Thanks TaxGuyBill!

Makes sense...Parents lived in a different city than clients.