Tax Guru – Ker$tetter Letter

Q:

Subject: Pregnancy and Section 121

Dear Kerry,
 I was just wondering if you had posted any opinion about the decision of the IRS to treat Pregnancy as “Unforeseen Circumstance,” Permitting Exclusion of Gain on Sale of Home Owned Less than Two Years Under § 121. I would be interested in reading your opinion on-line or on your blog. Please let me know where / when you post.

Thanks,

A:

I didn’t comment on that particular ruling because it was covered in several other tax blogs, as well as the fact that it was not in the least unexpected.  I don’t have time to search for the postings, but I can recall having posted at least a few Q & As where I had advised that a pregnancy would qualify a homeowner to use the pro-rated tax free exclusion. 

You have a good point that in these rare occasions when IRS actually demonstrates uncharacteristic common sense, it is something to be pointed out. 

This ruling does also add a new strategy to the tax saving repertoire that desperate people may decide to use; intentional pregnancies to justify selling a home before the two year time period.  That would be interesting to see an IRS auditor accuse a taxpayer of “tax motivated baby making.”

Thanks for writing.

Kerry Kerstetter