Question

55. Research Problem. Carl Cushman, a collec professor, age 58, purchased and moved into a house on August 1, 2017. He used the house continuously until September 1, 2018, on which date he went abroad for a one-year sabbatical leave. During part of the period of leave, the property was unoccupied and it was leased during the remainder of the period. On October 1, 2019, one month after returning from such leave, he sold the house. Can Carl use the exclusion for the sale of residence?

Answer 1

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

In the given circumstances, Carl has managed to qualify the ownership test (purchased house on August 1,2017 and sold on October 1,2019) but failed to pass the use test as he has used the house as his main home for a period of One year and One month (form date of purchase ie. August 1,2017 to September 1,2018). Hence. Carl cannot use the exclusion for the sale of residence.