Military Deployments and Tax-free sale of home

[Michael S.]

Curious if anyone on the forum has experience with the tax-free sale of a primary residence (up to $250k if single) concurrent with military deployments.

1) As I understand the tax code, if you live in a home for 2 of the last 5 years you can sell it tax free (up to $250k if single). My issue is that I will be "moved into" the house for 2 years, but 12 months of that I will have been deployed overseas. I am single, so its not as if part of my household will have remained behind. All of my furniture would still be in the house though.

2) I have also read that a partial exemption is available for "unforeseen circumstances" such as the loss of a job. Deployments are part of the job, so its hard to argue that they are unforeseen. However, would unanticipated PCS orders (to a different base) before the 2 years are up be considered? If so, does the percentage of the exemption mean the percentage of the $250k cap you get, or the percentage of the gain that is tax free?

I am seeking this information in order to make some plans. I plan on talking to an accountant later on down the road, but I just wanted to see if Bigger Pockets might have some info first. Any help is appreciated.

[Robert Leonard]

@Michael S.

1) You are correct about your understanding of the rule. As long as you keep your property as your primary residence and don't try to collect rent while you are deployed, your time will still count as part of your two years toward the exemption.

2) If you own it for less than 2 years you get a percentage of the cap, called the "Reduced Maximum Exclusion" based on the number of days you actually own the property. While deployments happen regularly, they still count as unforeseen circumstances and days of ownership toward your exemption.

http://www.irs.gov/publications/p523/ar02.html#en_US_2013_publink1000200838