Selling home - Less than 2 years - Restraining Order

[Bill Schrimpf]

Hi BP -

A friend bought a home about a year ago and in that time discovered the neighbors are drug addicts. With the addictive behavior has come vandalism, discharging of firearms, threats of violence, etc. to the point where my friend was able to obtain a restraining order against the neighbors.

My friend wants to sell. Is it possible for the extenuating circumstances (lots of calls to police, restraining orders etc.) to qualify as some sort of exception to the 2 year residency rule to avoid capital gains?

[Ashish Acharya]

@Bill Schrimpf, yes. In Ltr. Rul. 200403049, the IRS held that the hostility of neighbors qualified as unforeseen circumstances resulting in the availability of a partial gain exclusion.