Skip to main content

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


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

Mark as helpful

1 lawyer agrees




I didn't mean single, I meant MFS or MFJ. What I need is someone good in Capital Gains, anyone to recommend?

Dana Whitney Atchley

Dana Whitney Atchley


I don't know anyone in Florida I could recommend. Also, at the risk of flouting my own advice: (1) if any of your earned income was earned while you were in the US, then it cannot be excluded - the exclusion only applies to income that you earned overseas. (2) if your total income for 2010 was $28,433.49 - i.e., including everything you earned in the US and overseas, plus the taxable gain on the sale of your residence, - then I don't believe it really makes any difference whether you claim the foreign earned income exclusion or not because when I do a quick off-the-cuff analysis using the 2010 capital gains worksheet in the instructions to the 2010 Form 1040, you should end up with no tax due, even if you don't claim the foreign earned income exclusion. On a broader note, taking the foreign earned income exclusion does not disqualify one from getting the benefit of the long term capital gains tax rates; however, the amount excluded as foreign earned income is added back in when determining how much of your capital gains would be subject to the 0% rate, so even though it doesn't appear to make a difference in your case, if you had had more foreign earned income, it might have affected the tax on your capital gains, even though the income was otherwise excluded for income tax purposes.



I just paid a "tax advisor" for a consultation and he is telling me I owe $23,000 - saying if I didn't sale for health reasons or job relocation than I get no proration. If you do not qualify for exclusion - there is no pro-ration - and you will be taxed on the full capital gain - $169,300. 
If you file MFS - see tax rate schedule on page 98 - 
Your total income $29,000
minus standard deduction and personal exemption - $9500
your taxable income $19,500
plus capital gain $169,300
total taxable income $188,800
part of the capital gain that is below 15% tax bracket (see 
tax rate schedule $34,000)
($34,000 - $19,500) = $14,500 - that will be subject of zero long term capital gain rate. 
The rest of your capital gain will be taxed at 15% 
$169,300 - $14,500 = $154,800.
So your estimated tax liability on that gain is $154,800 * 15% = $23,220. HELP! If you're saying I shouldn't owe anything, can I hire you to tell me how?



It even seems he is contradicting what the IRS says on their website . . .

Real estate topics

Recommended articles about Real estate

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics