Edward, age 52, leased a house for one year in Memphis with an option to buy as his personal residence. At the end of the lease, he purchased the house. He lived there for an additional 26 months before his employer transferred him to Tucson. Expecting to be in Tucson for 18 to 24 months, he rented the Memphis house for 18 months with an option to extend on a month-to-month basis for an additional 6 months. At the end of the 18-month period, Edward’s employer offered him a permanent position in Tucson as branch manager. The tenant who had been occupying Edward’s house in Memphis purchased it at the end of the 24-month extended lease period. Is Edward eligible to elect exclusion treatment under § 121?
What will be an ideal response?
Yes. To qualify for § 121 exclusion treatment, Edward must have owned and used the residence as his principal residence for at least two years during the 5-year period ending on the date of sale. It is not necessary that the house be his principal residence at the date of sale. Edward has owned and occupied the residence for at least two years out of the 5-year period ending on the date of sale.
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