Use Test - Home Sale

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    Use Test - Home Sale

    Hello,

    We are trying to figure whether we meet the use test, on the sale of our house.

    We purchased our house in September 2009. It really was not inhabitable so we had to rebuild it (demolish and build). We chose a local design/build GC for our project. During construction we rented an apartment. December 2010 it was finished and we moved in. Unfortunately our new house was too big for the two of us so we decided to sell it. It sold in June 2012.

    We owned the house/property for 2yrs, 9mths. Does this satisfy the 2-year use rule to exclude the gain ?

     

    Thank you

     

     
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    Re: Use Test - Home Sale

    In the event we fail the use test, is the gain treated as a capital gain since we owned it for over 1 year ?

     

    Thanks again

     
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    Re: Use Test - Home Sale

    In response to 2FP's comment:

    Hello,

    We are trying to figure whether we meet the use test, on the sale of our house.

    We purchased our house in September 2009. It really was not inhabitable so we had to rebuild it (demolish and build). We chose a local design/build GC for our project. During construction we rented an apartment. December 2010 it was finished and we moved in. Unfortunately our new house was too big for the two of us so we decided to sell it. It sold in June 2012.

    We owned the house/property for 2yrs, 9mths. Does this satisfy the 2-year use rule to exclude the gain ?

    Thank you

    Dear 2FP:

    There does not appear to be anything in either IRS pronouncements or court cases that is exaclty a match to your facts.  The closest is a case where the Taxpayer built a home on their land, with the intention to occupy it, but sold it on completion, without ever occupyhing it.  Needless to say, the court did not allow the exclusion.  Since you did occupy it, a court would count it as use, but if you are short of the two years, there is no guarantee that the construction perioid would be counted as use by you as a residence (since there was nothing for you to occupy).  If tehre was a reason for your sale of the property, prior to achieving two years of use, and that reason was both compelling and beyond your control, you could qualify for a pro-rated exclusion - example: one and 1/2 years of occupancy following completion of construction before a sale due to emplyer relocation required for a promotion, you could claim 75% of the maximum exclusion (1.5/2 years).  Should you not be able to make that arguement and not take the chance that you could win the arguement of constructioin period as occupancy, the gain would qualify for long term capital gains treatment.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C. 

     

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