Partial Exemption on Capital Gains Tax?

Partial Exemption on Capital Gains Tax?
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#1

First off, I am 3 months shy of my 2-year mark of buying a condo as my primary residence. So I do not yet qualify for the full Capital Gains exemption.
However, a new owner or tenet has moved into the condo above me. She is a HEAVY heel-walker and she wakes up every morning at 5:30am. This means I wake up every morning at 5:30am. Every day and even sometimes on the weekends. It is affecting my sanity and job performance because I’m always tired. I’ve tried white noise (I have a LOT: air purifier, fan, fish tank, and Alexa plays me some lovely ocean waves). None of this helps as the noise is percussive; just a constant TWOMP TWOMP TWOMP TWOMP, Pause, TWOMP TWOMP TWOMP TWOMP. Rinse and repeat; for about 30 minutes until she leaves for work. You can feel it as much as you can hear it. She also stays up until midnight doing the same thing… she never just sits down and chills.
I understand that sometimes medical reasons or unforeseen circumstances can qualify you for a partial exception on Capital Gains taxes if you sell your home earlier than the 2 year mark. Would this type of situation count for one of those exceptions?


#2

Hi @joshuamitchellaz – That seems like a really difficult situation to be in!

You’re right, there are exceptions to the rules for that capital-gains-tax exclusion. I’m not sure if your situation would qualify. Probably the best thing to do would be to meet with a tax professional who has experience in this area. I did go to the IRS website and look up the rules around those exemptions, and I’ve copied them in below (here’s the IRS page).

One alternative strategy I did wonder about: Have you tried simply talking to your neighbor about this? If it were me, I’d probably start there. After all, it’s free to ask! Your neighbor might be entirely happy to remove her shoes when she gets home…?

Here’s the IRS info regarding exemptions to the rules:

Work-Related Move

You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.

You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.
You had no previous work location and you began a new job at least 50 miles from the home.
Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.
_ _

Health-Related Move

You meet the requirements for a partial exclusion if any of the following health-related events occurred during your time of ownership and residence in the home.

You moved to obtain, provide, or facilitate diagnosis, cure, mitigation, or treatment of disease, illness, or injury for yourself or a family member.
You moved to obtain or provide medical or personal care for a family member suffering from a disease, illness, or injury. Family includes your:
Parent, grandparent, stepmother, stepfather;
Child (including adopted child, eligible foster child, and stepchild), grandchild;
Brother, sister, stepbrother, stepsister, half-brother, half-sister;
Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law;
Uncle, aunt, nephew, or niece.
A doctor recommended a change in residence for you because you were experiencing a health problem.
The above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.
_ _

Unforeseeable Events

You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold.

Your home was destroyed or condemned.
Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn’t matter whether the loss is deductible on your tax return.)
You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
Died;
Became divorced or legally separated;
Gave birth to two or more children from the same pregnancy;
Became eligible for unemployment compensation;
Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income).
_ _

An event is determined to be an unforeseeable event in IRS published guidance.

_ _

Other Facts and Circumstances

Even if your situation doesn’t match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work-related, health-related, or unforeseeable. Important factors are:

The situation causing the sale arose during the time you owned and used your property as your residence.
You sold your home not long after the situation arose.
You couldn’t have reasonably anticipated the situation when you bought the home.
You began to experience significant financial difficulty maintaining the home.
The home became significantly less suitable as a main home for you and your family for a specific reason.