You might be surprised what qualifies as an unforeseen circumstance for the partial exclusion of gain on the sale of a personal residence. Under this special rule, taxpayers are allowed to exclude gain up to a reduced maximum exclusion amount under Section 121(c) if  the sale is due to a change in place of employment, health, or unforeseen circumstances even though it was used for less than two of the five preceding years as the personal residence.

Reg. 1.121-3 lists specific situations that automatically qualify as unforeseen circumstances, and also allows the IRS to “issue rulings addressed to specific taxpayers identifying other events or situations as unforeseen.”

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