A look at recently enacted legislation affecting real estate. Unless otherwise noted, all legislation will take effect in January 2007.
Profit exclusion on home sale within two years due to adoption
IRS Private Letter Ruling 200613009, 12-19-05
A married couple bought and occupied a property as their residence. After buying the home, the couple decided to adopt a child. Under state adoption law, a separate bedroom must be made available for the child. Less than two years after purchasing the home, the couple sold it and occupied a larger property with a sufficient number of bedrooms for compliance with adoption rules. They took a profit on the sale and wished to avoid taxes on the portion of the $500,000 exclusion available due to a move brought about by an unforeseen circumstance. The couple sought a ruling from the IRS, claiming the adoption of a child and the state law governing that adoption were unforeseen circumstances that led them to sell their residence. The IRS ruled the state law adoption process was an unforeseen circumstance and the couple was entitled to the tax exclusion for the profit taken on the sale of their residence.
Editor’s note — This IRS ruling applies only to the married couple in question. It cannot be used or cited as governing law.
