Interesting PLR released, PLR 201628002, by the IRS. Typically, a taxpayer can exclude $250,000 or $500,000 of gain on the sale of a primary residence if they used the property as a primary residence for two of the previous five years.
Taxpayers can use a pro-rated amount of the exclusion if they have an unforeseen circumstance which caused them to fail to meet the two year primary residence test.
Here, taxpayers were married and had a daughter. They purchased their first residence. The residence was a condo with two bedrooms and two baths. Eventually, the couple had a son and sold the condo prior to living there for two years to move into a bigger house.
The PLR ruled that the birth of the child was an unforeseen consequence and the taxpayers were eligible to use a pro-rata exclusion amount.
It should be noted, the PLR comments that the condo was pretty small. It even elaborated that the child's small bedroom was also used for the dad's office and as a guest room. The outcome of this PLR probably would not have been the same had the taxpayers condo been a 4 bedroom condo.
Relevant Cites: PLR 201628002
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