Temporary Absence - Use Test (Reg. §1.121-1(C)(2)(I))
The IRS provides a temporary absence use test to help taxpayers determine if they qualify for the home sale gain exclusion if they did not live in a residence full-time prior to selling it.
The taxpayer must occupy the residence (except for short temporary absences) for at least 2 years during the 5-year period ending on the date of the sale or exchange. However, short temporary absences, such as for vacation or other seasonal absence (even though accompanied with rental of the residence), are counted as periods of use.
Note: The Regulations provide no definition of a short temporary absence, but the following example taken from the Regs indicate a 1-year sabbatical is not short in the eyes of the regs.
“ Example – Meeting Use Requirements - Taxpayer D, a college professor, purchased and moved into a house on May 1, 2020. He used the house as his principal residence continuously until September 1, 2021, when he went abroad for a 1-year sabbatical leave. On October 1, 2022, one month after returning from the leave, D sold the house. Because his leave is not considered to be a short temporary absence for purposes of §121, the period of the leave may not be included in determining whether D used the house for periods aggregating 2 years during the 5-year period ending on the date of the sale. Consequently, D is not entitled to exclude gain under section 121. ”
-