@manchotroyal , having read through the opinions of my colleagues @AmeliesUncle , @Opus 17 and @Mike9241 and generally agreeing with the statements, I am still confused as to the exact facts . So I will first state the situation as I understand :
1. A & B , a married couple and filing jointly, bought property in P1 in 2012 ( 10 years ago );
2. They both used this as their main home till 2019 .
3. They acquired a second property -- P2 in 2019 for use a main home of B while working in the vicinity.
4. Assuming that A continued to use property P1 as main home through present while B used the P2 as the main home till 2021.
5. In 2021, year end, A & B sold property P2 , for a profit and chose to exclude the "small "profit ' -- as the main home of person B, while filing jointly.
6. Person B now has moved back to Property P1 and both A & B continue to use the property as main home
7. In early 2023, ( much short of required 2 years separation between gain exclusions ), because of employment changes ( > than 50 miles move ), A & B decided to sell the property P1.
Question now is what steps can they take to claim maximum / full exclusion of gains -- up to 500,000. Should / could they amend the earlier 2021 return to change " main home" recognition for the Property P2 ?
Could you please confirm that the above scenario essentially describes the facts as they stand today ? Have you already sold the property P1 or are just considering sale ?
My initial struggle is how to avoid perjury implications -- I say this because in my view a claim of use i.e. used as second home or main home is mostly not a choice / election -- it is a fact. You either used it as your main home or you did not . Of course there are nuances to this . Having claimed the property as you main home ( especially if for both Spouses ) and now changing that this was not so -- is either a new perjury or an old perjury ).
Therefore I am asking for more information. And also perhaps you need professional tax advice with all facts laid out.
May be other have different opinion on this .
I will await your answers and circle back .
pk
@pk12_2 good analysis. Under the facts as given (not completely clearly) I think it is at least possible that house #2 was spouse A's main home for 2 years while spouse B remained living in house #1. Under that circumstance, the following is possible without implicating any false statements (maybe) being made.
@manchotroyal
Re-reading your original question:
If spouse A lived in the second home for more than 2 years, and owned the home at least 2 years, then spouse A is allowed to use their personal exclusion of $250,000 when selling the home (but not the $500,000 exclusion that would apply to both spouses, because both spouses did not use the home as their main home.)
In that case, then when you go to sell the first home this year, spouse B may claim a full $250,000 exclusion without amending the 2021 return, because spouse B did not use their exclusion in 2022.
However, in order to claim the full $500,000 exclusion in 2023 for spouses A and B, spouse A must file an amended 2022 return to remove the previous exclusion and pay the tax. Also, spouse A can only use their exclusion on the original home (selling in 2023) if they lived in the original home as their main home at least 731 days of the 5 years prior to the selling date, after deducting the time that spouse A lived in the second home as their main home.
In other words, each spouse considers their $250,000 exclusion separately. If we are correct that spouse A lived in the second home while spouse B remained in the first home, then if they sell home #1 today, spouse A can claim a 9/24ths exclusion ($93,750) using the hardship rule, while spouse B can claim a 100% exclusion ($250,000) using the 2 year/5 year rule, without having to amend 2022. If the gain is more than $343,750, then spouse A would have to file an amended 2022 return to remove the exclusion (or pay the tax, depending on how much gain their was in 2022 on house #2 compared to the gain today on house #1.)
