Lived in home less than 2 years and were relocated my the military can we get an exemption for capital gains?

Question

We are an active duty Army family and were relocated by the military from Washington State to Texas. We had to sell our home before living in it for two years which I was told by my realtor was the magic amount of time you have to live in a home before you do not have to claim the profit made on the sale as a capitol gain. Does anyone know for sure if there is any kind of exemption is you are forces to move by your employer. My husband was not deployed during this time (if this matters) and we bought a new home in TX about two months before we sold the WA home . Thanks!

Answer 1

If a move is due to a job change or transfer (and yours would qualify, you don't have to be deployed), you get to prorate the amount that can be excluded by the number of months you DID live in the house, divided by 24 (the magic 2 years). See IRS Publication 17, page 103 under "Reduced Maximum Exclusion" and publication 523 - you can download them at irs.gov

Since you are a married couple, if you file a joint return your exclusion would have been $500,000 if you had lived in the house for the whole 2 years. So divide that by 24, and then multiply by the number of months you lived in the house to get what you can exclude. It's hard to imagine that you made more than that on the house sale!

Answer 2

The link below is an IRS publication about selling a home. I'm not sure if the section on Military applies in your case. If it does not, the section on 'Change in Place of Employment' appears to apply. It looks to me like you can exclude a gain on the sale of your home.

Answer 3

Just buy a house in Texas and you are fine.

You don't have to claim capital gains unless you net $250,000 or more and for 2 years that is unlikely.