When you sell your primary residence, you can avoid income tax on gains up to $500,000 ($250,000 if you’re a single taxpayer.) To get this tax break, you must have owned the home and used it as your principal residence for at least two years (730 days) out of the five years before the sale.
But what if you lived in the house for less than two years?
The U.S. Treasury Department says that you can get a partial tax break if you had to move out because of “unforeseen circumstance.” Such circumstances include natural disasters, change in employment or self-employment, divorce or legal separation, and multiple births from the same pregnancy.
Therefore, if you get a raise or a demotion at work, you may be able to can sell your house and take a partial tax break. The same is true if you start, change, or end a part-time business. Thus, if you want to move from an appreciated property in which you have lived for less than two years, you might be able to avoid paying tax on the gain by starting a home-based business.
Say you had lived in a house for one year, sold it, and can claim “unforeseen circumstances.” Because one year is 50 percent of two years, you’d get 50 percent of the maximum tax break. That would be a tax exclusion for up to $250,000 on any gain on the house sale, or up to $125,000 if you’re a single filer.