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Do I qualify for 0% Capital Gain tax rate that was used in 2010?

Orlando, FL |

I am back filing a tax return for 2010. It would be a complete lifesaver if I could qualify for the 0% rate on Capital Gains that was available in 2010 for low income filers (those in 10% and 15% bracket), but I am having a hard time understanding this completely. Here is my situation:
Bought primary residence in 2008, lived there 21 FULL months (day to day) without interruption. I am therefore 3 months short of meeting the 2 year requirement to exclude a big chunk of gain.
Here is how I calculated my taxable gain:
Sale Price – Real Estate Commissions – Basis/Purchase Price = $169,300 divided by 24 months (2 year requirement) = $7,054.17 per month x 3 months (3 months short of meeting 2 year requirement) = $21,162.50 TAXABLE GAIN. First Question, did I calc this rate?
2nd question: Can I pay 0% on this taxable gain because here is my 2010 income: $28,433.49 BUT as of May 1 2010, I moved to Europe and lived there continulous for the entire year, so I think I qualify for a PRORATED FOREIGN EARNED INCOME EXCLUSION ($91,500 whole exclusion for 2010), which would effectively reduce my 2010 taxable earned income to $0 (right, or can I not count January thru April as Foreign Earned income?), only leaving me with the taxable gain of $21,162.50 which is under the 15% bracket even if I file single (I can file married if needed, husband had $0 income for that year). Please let me know if this workup of the numbers is correct to qualify me for the 0% on capital gains. I understood that taxable income (including taxable gain) had to be in or under 15% bracket to qualify, but want to make sure I am doing this correctly.

Attorney Answers 1

  1. I would say first and foremost that from your discussion you should really have a competent tax professional - an accountant or CPA with expertise in foreign matters should suffice - to advise you on preparing your return. Preparing tax returns in situations such as yours can get complicated very, very quickly, and it's easy to make a mistake: in addition to whether or not you qualify for some or all of the foreign earned income exclusion or partial exclusion of the gain from selling your house, there are also potential tax treaty benefits you might be able to claim, foreign tax credits, and other issues that are not easy to work out by yourself.

    Also, with respect to your filing status for 2010, you don't get to choose whether to file as single or as married. If you and your husband were married on December 31, 2010, then you were "married" for income tax purposes and must file as either married filing separately or married filing jointly.

    Lastly, please do not rely on answers you get for free online from strangers whom you've never met and whom you've not retained to advise you. In particular, do not rely on any answer that purports to solve your problem - there are a lot more facts you haven't described that are pertinent to your tax matters and it would be impossible to get all of them adequately addressed in a free online forum such as this. In other words, please don't take candy from strangers.

    My answer does not constitute legal advice and may not be relied upon by anyone for any purpose and does not constitute an attorney/client relationship or an offer to form such a relationship. This disclaimer is intended to be fully compliant with the requirements of Treasury Department Circular 230 and the terms thereof are fully incorporated by reference. If you wish to consult with me please contact me at dana@nytaxcounsel or visit my website at

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