An individual purchased a residence on June 15, 2004, to be used as a principal residence for himself and his three children. He met a single mother with two children, and they were married in October of the same year. She and her two children moved into the taxpayer’s home.
The wife’s mother, for who she was caring, was left partially paralyzed because of an illness and could not live independently anymore, so the mother moved into their residence in May of 2005. In order to provide adequate space and care for his wife’s mother, the couple sold the residence in December 2005, and purchased a new home.
Code §121, provides that taxpayers can exclude the gain from the sale of residence if they own and occupy the residence tow out of the last five years. However, under special medical circumstances a reduced exclusion can be used if the sale of residence occurs prior to meeting the two-year test.
The regulations under this code provide a reduced exclusion if the sale is by reason of health of a qualified individual. A qualified individual includes the taxpayer, the taxpayer’s spouse, a co-owner of the residence, a person whose principal place of abode is in the same household as the taxpayer, and certain family members. In this PLR, the taxpayer’s disabled mother-in-law is a qualified individual for the reduced exclusion.
The IRS found that the reason for the sale of his residence prior to the two-year rule under §121(a) was to accommodate the special needs of his mother-in-law, a qualified individual. Thus, the IRS concluded that the taxpayer could exclude gain up to the reduced maximum exclusion amount under §121(c), even though he lived in the residence less than the two out of five years.
Code §121, provides that taxpayers can exclude the gain from the sale of residence if they own and occupy the residence tow out of the last five years. However, under special medical circumstances a reduced exclusion can be used if the sale of residence occurs prior to meeting the two-year test.
The regulations under this code provide a reduced exclusion if the sale is by reason of health of a qualified individual. A qualified individual includes the taxpayer, the taxpayer’s spouse, a co-owner of the residence, a person whose principal place of abode is in the same household as the taxpayer, and certain family members. In this PLR, the taxpayer’s disabled mother-in-law is a qualified individual for the reduced exclusion.
The IRS found that the reason for the sale of his residence prior to the two-year rule under §121(a) was to accommodate the special needs of his mother-in-law, a qualified individual. Thus, the IRS concluded that the taxpayer could exclude gain up to the reduced maximum exclusion amount under §121(c), even though he lived in the residence less than the two out of five years.
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