Sale of home

[Captain1]

Client Situation:

Elderly client bought house in May 1986 for $85,000. She moved in with one of her daughters in 2006 due to health reasons and the inability to sustain the mortgage and upkeep of the home. In order to provide needed income for the elderly client, the house was rented until August of 2018, when the income from the sale of the house was needed to provide long term care. The house was not able to be sold until May 3, 2019, at which point the proceeds were used to move the client to an assisted living facility. She remained in the facility from September 2019 until her death in March of 2020.

During the 5 year period before the sale of the house in May of 2019, the elderly client continued to own the home. However, due to health reasons and financial hardship she was not able to live in the house she owned during any 2 year period within the 5 years before the sale of the house. Based on the circumstances described, I believe the elderly client is still eligible for the exclusion of the gain on the sale of the property due to the exceptions of health and hardship. Is this correct?

[BobKamman]

No.

[Captain1]

Why doesn't this meet the exclusion?

[TaxGuyBill · Accepted solution]

In some cases, a health-related move can qualify for an exclusion if the use was less than 2 years.  However, it is prorated based on the ACTUAL use during those two years.  Even if the circumstances were to qualify (which is questionable), it would be prorated.

So because there was zero use in 2 years, the taxpayer qualifies for 0/2 (0%) of the $250,000 exclusion.  So that is $0 of exclusion.

If the taxpayer had used it for 1 year in the last 2 years (the actual calculation uses days, not full years), then *IF* the health reason qualified, then the taxpayer would qualify for 1/2 (50%) of the $250,000 exclusion.  But because your client did not use it at all, there is no exclusion.

[BobKamman]

Because.

Probably your mother and you loved her dearly and miss her especially on Sunday, but don't be ridiculous.