Taxes · IRS Publication 523Selling a home before 2 years: the partial exclusion and the military suspension

The home sale exclusion normally requires owning and living in the home for 2 of the 5 years before the sale. IRS Publication 523 (2025) gives two ways around a shorter stay. Partial exclusion: if the main reason for the sale was a change in workplace, a health issue or an unforeseeable event, you may exclude part of the gain. A work-related move qualifies if you – or your spouse, a co-owner or anyone else who lived there – took or were transferred to a job at least 50 miles farther from the home than the old work location, or began a job at least 50 miles away with no previous work location. A health-related move qualifies if you moved to obtain or provide diagnosis or treatment, or care for a family member (parents, grandparents, children, grandchildren, siblings, in-laws, uncles, aunts, nephews and nieces), or a doctor recommended a change of residence. Unforeseeable events include the home being destroyed, condemned or damaged in a disaster; and death, divorce or legal separation, the birth of two or more children from one pregnancy, becoming eligible for unemployment compensation, or a change in employment leaving the household unable to pay basic living expenses – plus events the IRS designates in published guidance. Even outside those standard cases, the facts can show the sale was work-, health- or unforeseeable-event-related, for example when the situation arose while you lived there and you sold soon after. Military and other service: if you or your spouse are a member of the uniformed services or the Foreign Service, an intelligence community employee, or a Peace Corps employee or volunteer serving abroad, you may suspend the 5-year test period while on qualified official extended duty – ordered to duty for more than 90 days or indefinitely, at a station at least 50 miles from the home or in government quarters. The suspension can last up to 10 years (15 years in total with the 5-year period), applies to one property at a time, can be revoked, and is elected by filing your return for the year of the sale.