Thank you to Sharon and Rudy for taking the time to read
through and reply.

I did see where they were specifying health but hadn't
caught the specific situation defined for asthma which is
quite similar. I will definitely get a note from our
pediatrician for reference on this. In reviewing the forms I
can not see any place to specify the justification for the
reduced exclusion, or to submit any supporting
documentation, so I guess I should just keep it on hand in
case the inquire next year.

Thanks again for your input on this and advice on this it is
greatly appreciated.

Dean.

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Here is Regulation 1.121-3(d) that explains what would
qualify you for the reduced exclusion safe harbor:

http://a257.g.akamaitech.net/7/257/2...cfr1.121-3.htm

Given the facts and circumstances, I believe that you would
qualify for the reduced exclusion safe harbor rules as your
situation is similar to example 4 given in the above
regulation, though you may want to get a doctor's statement:

"Example 4. B, who has chronic asthma, purchases a house in
Minnesota in 2003 that he uses as his principal residence.
B's doctor tells B that moving to a warm, dry climate would
mitigate B's asthma symptoms. In 2004 B sells his house and
moves to Arizona to relieve his asthma symptoms. The sale
is within the safe harbor of paragraph (d)(2) of this
section and B is entitled to claim a reduced maximum
exclusion under section 121(c)(2)."

Rudy
www.LizcanoTaxServicesLLC.com

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azdeano[at]gmail.com wrote:

- quote -

If you look at page 14 in PUblication 523, health is one of
the reason that you can get the exclusion, looks like you
would qualify. Just estimating the numbers looks like you
owned and lived in the house around 460 days. This would be
63 % of the 24 months exclusion would be about $ 315,000.
Do the table to come up with right numbers.

Sharon


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I am looking for 2 things but mainly regarding my home sale.
I apologize in advance if I am long winded but here is my
situation:

I moved in December 2004 to a small 3 bedroom (2 bedroom +
den/office) that backed onto a golf course. The house was
for myself and girlfriend at the time we purchased although
we were engaged within 2 weeks of moving in. Everything was
nice with the house but by late winter / early spring 2005
my wife stated to get pretty bad seasonal allergies that she
hadn't every really had before. She got by ok with over the
counter medications like clariton and the like. Anyway long
story short we got married later in 2005 but with no plans
for children for at least a year or more beyond that.
However as fate would have it even though we were not trying
too we became pregnant late last year just shortly after
getting married. As much as it's early and we were/are not
quite 'ready' we are very happy and looking forward to our
new addition.

In any case the pregnancy was going ok but the allergies
started up to the point she thought she was sick at first.
She was not sleeping well, having throat soreness, itchy
eyes and all of that but could not take any medication as we
were recommended to avoid it. It was causing stress for the
pregnancy and she started opting to spend weekends at her
parents for relief as it's particularly worse for her during
the day times after they run the mowers on the course and
kick up all of the stuff in the air. She tends to be fine at
her parents only a few miles away and spent most of her
spring break there as well.

Long term we realized we needed to move either way and with
the need for her to stay home to care for the baby being
stuck in a house where she has bad allergies would be bad
enough. Also to breast feed they still say not to take most
medications. She is a Grade 1 teacher and completes her year
to stay at home with the baby in May so we started looking
around and checking the market to see what we could get
into. With the market surge here recently everything had
gone up but we found something that was just perfect for us
and priced to sell at exactly the same price as what our
current house was valued. It's a slightly larger 4 bedroom
sans the golf course only a few miles away in a nearby
neighborhood to her parents. So we put in a conditional
offer on the sale of our house and listed our house for
sale. Before we had time to even think about it our house
sold in just 2 days.

The problem now is that the appreciation we show on the sale
is about $90,000. When I went into this I knew we were
inside of 2 years but thought we still had the rights to do
a wash between the houses and not deal with taxes since we
are staying invested in exactly the same value and not
actually realizing any net gains. However I've now learned
late in the game that the rules which changed a while back
to allow the gains to be realized every 2 years tax free,
also essentially prohibit selling inside of 2 years even if
you reinvest 100%. I guess it's not quite accurate to say
'prohibit' but it kind of seems like it when you just move
for a change in life situation and not for a net profit.

So here I am I have this deal gone through and I've
discovered that the rules aren't as I thought. I've now
spent the last 2 days researching as much as I can and read
up on the reduced maximum exclusion. It seems the intent for
this somewhat matches my circumstances in that we discovered
the house we moved into was no longer suitable for us due to
several unforeseen circumstances. However nothing that my
situation really matches any of the list of scenarios that
they outlined in the pub 523 document. I also found another
document that has a bunch of scenarios but still leaves me
unsure. Here are the links that I am referring to:

http://www.irs.gov/pub/irs-pdf/p523.pdf
http://www.irs.gov/pub/irs-regs/td_9152.pdf

So in the end my story isn't very short but I'm putting it
out here for comments. If anyone has made it this far do you
have any advice if you think we will qualify for this
exemption? The form shows a section where you can fill out
to calculate the prorated amounts but it doesn't say how to
be sure if you qualify. How do I know if I will? Is this one
of those fill it out and take a shot sort of things? Are
there any steps I should take now to ensure that I have what
I need when it comes time to file taxes next year?

I guess in the end it's nice the market went up but I wish I
knew what I know now and would have pushed through a few
more months and had her stay at her parents a lot and would
have tried to stretch it out in the current house.....at
this point I'm now looking at it as a done deal and trying
to start out a family and don't need a $12,000 tax bill to
start with. But I guess in the end it's my own fault for
not researching further before going forward I guess.

Thanks in advance for any advice.

Dean.

P.S. I mentioned I was looking for 1 other thing and that is
a good tax advisor to work with. I don't have tons of money
and investments to manage but I would like to have someone
for tax preparation and for any questions like this when
they come up. Does anyone have any suggestions for someone
in the Phoenix area?

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