Can I still claim primary residence for capital gains tax with the 2 out of 5 year rule if I've been living overseas?

Thanks for the reply! One thing I'm confused about though - does the fact that we're overseas most of the time affect this? Like, if we're physically present in another country for work but consider our US house our "real home" will the IRS accept that? Also, does having a rental apartment overseas hurt our case?

Living overseas for work is generally considered a temporary absence if you intend to return to your main home. The key is that you haven't established another primary residence by buying property elsewhere, and you've maintained all your connections to your US home. Your situation is exactly what these rules were designed to accommodate. Having a rental apartment overseas actually strengthens your case, as it shows your living situation abroad is temporary rather than permanent. The IRS understands that people take extended work assignments without giving up their actual primary residence. Just make sure you don't claim any tax benefits on your overseas housing that would contradict your US primary residence claim.

How exactly does this taxr.ai thing work? Did you have to upload a bunch of documents or something? I'm in a somewhat similar situation except we rented our place out while overseas.

Is it actually reliable for complicated tax situations? My accountant gave me conflicting advice about this exact issue and I'm not sure who to trust at this point. Did the IRS accept the position you took based on what taxr.ai told you?

For the document question, yes, you can upload relevant documents like property tax statements, employment contracts showing temporary assignment, utility bills, etc. The system analyzes them to help determine your situation. It also works without documents by answering detailed questions, but the document analysis gives more precise guidance. Regarding reliability, I found it extremely accurate for my complex situation. My accountant actually revised his initial opinion after seeing the detailed analysis from taxr.ai. The tool cites specific IRS publications and tax court cases relevant to your situation. I filed according to their guidance last year and had no issues with the IRS accepting my position.

Wait, how does this actually work? You pay someone to wait on hold with the IRS for you? That seems too good to be true given how impossible it is to reach them.

I'm super skeptical about this. The IRS phone system is notoriously terrible. I've literally spent entire days trying to reach someone. You're telling me this service somehow magically gets through when millions of people can't? Sounds like a scam to me.

The service basically uses technology to navigate the IRS phone system and wait on hold for you. When they reach an actual IRS representative, you get a call to join the conversation. You don't pay someone to physically wait on the phone - it's an automated system that monitors the hold and then connects you. I was skeptical too, but it genuinely works. The reason it's effective is they've analyzed the best times to call and use multiple lines to increase chances of getting through. It's not magic - just efficiency and technology. The IRS system is still terrible, but this service has figured out how to work within it. When you've spent days trying to resolve tax issues, the service becomes worth it just for the peace of mind.

What about foreign earned income exclusion? Doesn't claiming that on your taxes potentially create a conflict with claiming the US house as your primary residence? I'm in a similar situation and worried I might be creating problems for myself.

That's an excellent question about potential conflicts. While claiming the Foreign Earned Income Exclusion does require you to establish that you're a bona fide resident of a foreign country or physically present there for a certain period, this doesn't automatically disqualify your US home as your primary residence for the capital gains exclusion. The key is consistency in how you present your situation. The primary residence exclusion looks at where your main home is located (where you ordinarily live most of the time), while the FEIE looks at where you earn income and spend time. They examine different factors for different purposes. Just make sure your documentation clearly shows that despite working abroad, you've maintained your US home as your main home with the intention to return. Many expats successfully claim both benefits when their situations legitimately qualify.

Does the IRS actually count days though? I thought it was more about where you consider your main home to be, not a literal day count. My tax guy said it's more about intent than actual occupancy days.

You're both right in a way. The IRS does look at the "use test" which requires 2 years of use as your main home during the 5-year period before sale. While it's not strictly a day-by-day count, the IRS does expect you to meet the 730-day threshold if questioned. The key is that "use" doesn't just mean physical presence - it includes periods when you're temporarily away but still consider it your main home. For work assignments, military deployment, or other temporary absences, the IRS typically considers those as periods of "use" as long as you maintain your intent to return and don't establish a new primary residence elsewhere. So while intent is crucial, having documentation of your actual presence (like Adrian mentioned) provides solid backup if the IRS wants specifics. The combination of both factors - clear intent plus substantial physical presence - gives you the strongest position.