My wife and I, filling taxes jointly, just closed on a $160K house on July 22nd. Due to unexpected circumstances I will have to quit my job in the US and get a new job in Europe. As a result we would need to sell the house very soon, e.g. on September 22nd (2 months later), say for the (more than extraordinary) price of $200K. As kindly pointed out by fellow users, we would normally have to pay taxes on the associated capital gain, however the job change represents special circumstances.

The question is then: can we benefit from a partial exclusion on the short-term $40K capital gain due to my job change?

The full exclusion for a married couple filing jointly, and having lived in the house for 24 months is $500K. So 2 months occupancy does not seem much but this would actually represent 2 / 24 = 8%, i.e. $500K x 8% = $40K. The follow up questions are then:
- does the partial exclusion works even for only 2 months of occupancy?
- how to make sure the full 2 months will be considered (proof of occupancy start date / finish date?)? - how is the partial exclusion calculated? Is that rounded up to the day? Or for example rounded down to the month? The latter would be quite bad if the occupancy is estimated to be 7 weeks and rounded down to 1 month.

Note: the job is in Europe as I am from there but since I have lived in the US for more than 2 years, I am considered a US person for tax purposes (including for 2016 even if I will not be in the US from October onwards). The fact I am not a US person for immigration purposes therefore should not matter.

  • 1
    So you seem to be right and the exclusion does apply. So why did you ask the question if you already know the answer? – littleadv Aug 3 '16 at 19:52
  • As you said it "seems" to be right but I just discovered US taxes on capital gain this week so I would not trust myself on what I came up with and would like the opinion of people with more experience. – michael Aug 3 '16 at 20:04

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