If an employer-mandated relocation requires me selling my home, would I be subject to capital gains tax?

by Robert D. Hornick, CPA | Feb 02, 2018
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I own my house and have lived in it for about a year and a half. I have recently been required to move across the country for my job, triggering the sale of my current home. I know the current IRS capital gains tax exemption on a home sale requires me to have lived here for two of the past five years, with some exceptions. Because this is an employer-mandated move, will I be required to pay capital gains tax on the net proceeds from this home sale, or will I be exempt?

First, let me bring to your attention that the capital gains tax is not based upon “the net proceeds from the sale of the home.” The capital gains tax is based upon the gross sale price less all costs. This calculation may be particularly important since it is unusual to have a gain on the sale of a residence after a relatively short period of ownership, taking into consideration the transaction costs of the purchase and the sale.

Yes, there is a special provision for taxpayers who do not meet the two-year ownership and use tests. They can claim a reduced maximum exclusion on the sale of a home if the primary reason for the sale is due to a change in the place of employment of a qualified individual. Qualification includes the change occurred during the period the taxpayer owned and used the property as a primary residence, and the new place of employment is at least 50 miles farther from the taxpayer’s home than the former place of employment. For the reduced maximum exclusion calculation, please refer to IRS Publication 523, Selling Your Home.

If the residence is in Pennsylvania, and you meet the federal reduced maximum exclusion rules, the sale under the two-year rule still results in the exclusion of the entire gain.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Robert D. Hornick, CPA, is with Hornick & Associates LLC in Philadelphia.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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