Two unmarried taxpayers can exclude gain from the sale of their home -- even though they fail the two-year ownership and use tests of the tax code -- because the primary reason for the sale was an unexpected pregnancy.In a Dec. 29 letter responding to a ruling request, the Internal Revenue Service said that a pregnancy meets the “unforeseen circumstances” exclusion outlined in Section 121(a)(c)(2) of the code.

According to the facts outlined in the IRS ruling, the two taxpayers jointly purchased a home as their principal residence. Within seven months of the purchase, the couple was no longer dating and the female taxpayer discovered that she was one-month pregnant. The taxpayers plan to sell the residence because the home is not large enough to accommodate two adults and a child, but neither taxpayer can afford to make the monthly mortgage payments alone.

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