Harry Gross: Home-seller excluded from 250G

DEAR HARRY:

Back in 2010, my girlfriend and I sold our home in the Philadelphia suburbs for $704,000. There was a gain to each of us of $170,000. Our accountant took the exclusion of $250,000 for each of us. We are now in a fight with an IRS agent who says we are entitled to an exclusion of only $250,000 for the home; that not being married cannot give us a bigger exclusion than a married couple would have. His supervisor, to whom we appealed, agreed with his agent. Our accountant wants to appeal further. Is it worth the effort and cost to go this way, or should we just accept the tax on $45,000 ($170,000 minus $125,000)?

WHAT HARRY SAYS: I find it very hard to believe that this is still an issue. It was pretty clear to most tax experts when the exclusion was put into the law that Congress wanted it to apply per individual, not per home. This was further reinforced by an example in the IRS regulations to Section 121 in which unmarried joint owners were each entitled to a $250,000 exclusion. Some toads at IRS even went to Tax Court to defend this $125,000 issue (Sung Huey Mei Hsu v. Commissioner). IRS lost. Absolutely go for the appeal. Remember, in the good old USA, you can "fight city hall" and win.