TaxProf Blog: Lesson From The Tax Court: The Unforeseen Circumstances Rule For §121 Home Sale Exclusions (April 25, 2022)

Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From The Tax Court: The Unforeseen Circumstances Rule For §121 Home Sale Exclusions” which discusses Steven W. Webert and Catherine S. Webert v. Commissioner, T.C. Memo. 2022-32 (Apr. 7, 2022) (Judge Gustafson). The article begins as follows:

The Tax Code gives homeowners many tax breaks.  Chief among them is the ability to exclude up to $500k of gain from the sale of a principal residence (for married taxpayers filing jointly).  Taxpayers seeking this exclusion must meet some basic requirements, set out in §121.  Taxpayers who fail the requirements, however, may still qualify for an exclusion under the unforeseen circumstances rule in §121(c).

Steven W. Webert and Catherine S. Webert v. Commissioner, T.C. Memo. 2022-32 (Apr. 7, 2022) (Judge Gustafson), teaches a lesson on the operation of the unforeseen circumstances rule.  There, unforeseen circumstances arguably forced the taxpayers to move out of their home during a real estate bust in 2009.  Apparently unwilling to sell short, they rented out the home until the market recovered and eventually sold it for a gain of about $195k in 2015.  They attempted to exclude the gain under §121, claiming they were entitled to do so because of the unforeseen circumstances rule in §121(c).  The IRS thought the claim had no merit.  Curiously, the Tax Court did not (yet) agree.  Beats me on why.  I explore the rule, and the mystery of why the IRS lost its Summary Judgment motion, below the fold.

Click here to see the full article: “Lesson From The Tax Court: The Unforeseen Circumstances Rule For §121 Home Sale Exclusions”.

Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.

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