Christian Posted June 24, 2017 Report Share Posted June 24, 2017 A male client decided to marry in 2016. He and his now spouse decided to buy a new home and sell the two homes they had owned as single individuals. She sold hers last year and his is up for sale. My thinking in respect of the tax exclusion on these homes is that each one is entitled to the $250,000 exclusion. His former home is titled in his name only. What do y'all think? Quote Link to comment Share on other sites More sharing options...
Yardley CPA Posted June 24, 2017 Report Share Posted June 24, 2017 Do they both meet the exclusion stipulations? If so, I believe they qualify. Topic 701 - Sale of Your Home If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic 409 covers general capital gain and loss information. Qualifying for the Exclusion In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You're eligible for the Section 121 exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule. Reporting the Sale If you receive an informational income-reporting document such as Form 1099-S (PDF), Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. Additionally, you must report the sale of the home if you can't exclude all of your capital gain from income. Use Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return. Suspension of the Five-Year Test Period If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. You're on qualified official extended duty if for more than 90 days or for an indefinite period, you're: At a duty station that's at least 50 miles from your main home, or Residing under government orders in government housing. Refer to Publication 523 for more information about this special rule to suspend the 5-year test. Installment Sales If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under section 121 remains available. Refer to Publication 537, Installment Sales, Form 6252 (PDF), Installment Sale Income, and Topic 705, Installment Sales, for more information on installment sales. https://www.irs.gov/taxtopics/tc701.html https://www.irs.gov/uac/irs-issues-home-sale-exclusion-rules Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 24, 2017 Report Share Posted June 24, 2017 1 hour ago, Christian said: A male client decided to marry in 2016. He and his now spouse decided to buy a new home and sell the two homes they had owned as single individuals. She sold hers last year and his is up for sale. My thinking in respect of the tax exclusion on these homes is that each one is entitled to the $250,000 exclusion. His former home is titled in his name only. What do y'all think? As long as they are married and filing MFJ in the year of the first sale, AND they both meet all the other requirements for gain exclusion, they qualify for the full $500K exclusion. Then depending on when the second one sells, they may not be able to exclude that gain if they've already excluded a gain within the 2-year period ending on the date of that second home's sale. The parts of Pub 523 that actually cover this: Quote Married, Divorced, Widowed Marriage. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period. If one spouse meets the ownership requirement, both are considered to have met the requirement Quote How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met. You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale. You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years. You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude. 1 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted June 26, 2017 Report Share Posted June 26, 2017 They either have to wait two years to sell his, or pick the one with the bigger gain and exclude that. They might also be able to use the 'unforseen' circumstances to get a partial exclusion on the second home. Are the gains big enough to even be concerned? Quote Link to comment Share on other sites More sharing options...
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