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Normally, if you or your spouse owned and used your principal home at least two out of the last five years, you could avoid up to 500K of gain if married and 250K of gain if single. HOWEVER, there are some exceptions to the two year rule.
If there is a hardship or unforseen circumstance, You can get a partial exclusion. Thus, if you just moved into your principal residence one year ago out of the past 5 years, you can get a 50% exclusion since you lived in the home 50% of the two year requirements.
So what is a hardship or unforeseen circumstance:
1. Job change
2. Big fire
3. Birth of new kids or multiple births
Special tip: Any mental incapacity gets the full exclusion regardless of the time lived in the home. Thus, if you suddenly develop Alzheimer’s after just moving to your new home, you get the full exclusion.
NOTE: the new Health Care Reform Law will impose a 3.9% surtax on the gain from real estate even your home in 2013. However, this only applies to gains above this exclusion and only applies to single taxpayers who have adjust gross incomes over 200K or married taxpayers with AGIs over 250K.