Q:

Subject: Sale of residence

 

I appreciate the information found on your website, and would like your advice on the facts and circumstances surrounding a sale of residence.

A client of mine had leased a home between 2001 and 2004, then purchased the home in 2004 because of its private wooded surroundings and park-like back yard.  In mid 2005, a neighbor of there's offered to purchase every home on the street.  His intent was to subdivide the land and fit new homes on the existing parcels...

My client turned the first offer down, but when approached a second time, the investor stated that the rest of the neighbors had already agreed to sell, and if they did not sell to him, they would end up with new construction surrounding there property that would diminish the quality of the surroundings.  My client eventually sold, and purchased a similar property elsewhere.

I would greatly appreciate your advice on qualifying this as an unforeseen circumstance.

Thank you,

A:

The key requirement for using the pro-rated exclusion is that something unanticipated happened after the home was purchased that materially changed the living conditions in the house for its owner and other occupants.  If IRS were to question the application of the exclusion, the homeowner would have to be able to convince them that, if he had known ahead of time what the change would be, he wouldn't have bought the place.

In your client's case, the change from a home with no big construction projects around it to one that is surrounded by construction is a material enough change to alter the living conditions enough to warrant a move.  Construction sites are noisy (making sleep difficult) and dangerous, especially if your client has young children. 

It seems that the only real burden your client would have is being able to convince IRS (in the unlikely event of a challenge) that he had no advance knowledge of the developer's plans for his neighborhood and it only came to light after he had taken ownership of the home.  If that's the case, he should have no problem qualifying for the pro-rated tax free exclusion.

Good luck.  I hope this helps.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/25/2006 11:29:00 AM Send this post: