Capital gains on home sale due to job change

Dear Tax Talk,
I’m closing one month shy of two years since the sale of my last primary residence. Sale of home is due to a job transfer over 400 miles away. I have calculated capital gains of $40,000. Do I have to pay capital gains on a home sale due to a job change? If so, how much? Thanks for your help on these questions.
— Tom

Dear Tom,
You may be able to reduce the amount of capital gain on the sale of your residence due to your job change even though you do not meet the two-year requirement.

The IRS allows a maximum exclusion of $250,000 of gain ($500,000 for married couples filing joint returns) on the sale of your qualifying residence if you meet the ownership and use tests. The ownership test means you have owned the home for two years. The use test means that over a five-year period ending on the date of sale, you have lived in the home for two years.

If you do not meet the above tests, the IRS also allows a reduced maximum exclusion due to changes in employment, health reasons or other “unforeseen circumstances.” The details regarding these categories are covered in IRS Publication 523, Selling Your Home.

In your situation, you did not meet the two-year test due to your job change. The good news is that you may qualify for a reduced exclusion because your new job location is at least 50 miles farther from your old home.

Now for the hard part: You are going to need to complete work sheets 1, 2 and 3 that are included in Publication 523 in order to calculate your reduced maximum exclusion. I believe you will find it time well spent.

Thanks for your question and best of luck in your new job.

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