I and my wife had lived in two different states (Indiana and Michigan) due to employment. We jointly owned two homes. First home is at Indiana which has been primary/principal residency since 2003. Then I moved to Michigan due to job and bought second home in Michigan in 2012. For property TAX reason, we had Michigan home as Principal Residence Exemption (PRE) since and changed Indiana home to non-homestead deduction (nonpricinpal home). We have been filed tax as “married jointly”. We sold the Michigan home in October, 2020, (bought another home at same time in Michigan). This home sale gained $200,000.We then sold Indiana home in August, 2021 (wife retired). This home sale also gained $200,000. Summary: Both Indiana and Michigan homes meet the IRS exclusion requirement of self live in the past 2 of 5 years and gain is not over $500,000. They both for self-live, NOT for rental. BUT after reading “IRS Tax topic 701; Publication 523”; I believe I do not qualify “Eligibility Step 4 - Look-Back” My questions:1). Want to confirm that I should pay one of the home sale TAX.2). Can both home sale be gain exclusive due to couple employment separation?3). Can we file partial home sale gain exclusion, because my wife got part-time job after moved to Michigan.Thanks. James

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Qs for Home Sale Exclusion of Gain?

Forum|Forum|4 years ago
May 16, 2022
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I and my wife had lived in two different states (Indiana and Michigan) due to employment. We jointly owned two homes. First home is at Indiana which has been primary/principal residency since 2003. Then I moved to Michigan due to job and bought second home in Michigan in 2012. For property TAX reason, we had Michigan home as Principal Residence Exemption (PRE) since and changed Indiana home to non-homestead deduction (nonpricinpal home). We have been filed tax as “married jointly”.

We sold the Michigan home in October, 2020, (bought another home at same time in Michigan). This home sale gained $200,000.
We then sold Indiana home in August, 2021 (wife retired). This home sale also gained $200,000.

Summary: Both Indiana and Michigan homes meet the IRS exclusion requirement of self live in the past 2 of 5 years and gain is not over $500,000. They both for self-live, NOT for rental. BUT after reading “IRS Tax topic 701; Publication 523”; I believe I do not qualify “Eligibility Step 4 - Look-Back”

My questions:

1). Want to confirm that I should pay one of the home sale TAX.

2). Can both home sale be gain exclusive due to couple employment separation?

3). Can we file partial home sale gain exclusion, because my wife got part-time job after moved to Michigan.

Thanks. James

Best answer by Mike9241

what i can't answer is if there are any issues with claiming Michigan as a principal residence for real estate tax purposes since it seems

you are saying your spouse lived in and owned the Indiana residence from 2003 until sold in 2021 and you never occupied it as a principal residence for any 2 out of 5 years before its sale

you are saying you lived in and owned the Michigan residence from 2012 until sold in 2020 and your spouse never occupied it as a principal residence for any 2 out of 5 years before its sale

the rules for a married couple to take the $500,000 exclusion on their principal residence is that BOTH must occupy it for 2 out of 5 years before sale and one of you must own it for 2 out 5 years before the sale.

since I think you're saying each had a separate residence that they occupied as detailed above, only you would have been entitled to claim up to a $250K exclusion on the MI home. in the same context your spouse is entitled to claim up to a $250K exclusion on the sale of the IN home

section 121 of the code and regs states that if each spouse sells a home and each meets the ownership and use tests on their principal residence and has not used previously use the exclusion on the sale of their home within two years of the current sale of their home, each spouse can exclude up to $250K of gain on his own home. since both spouses do not both meet the use test for either residence, the allowable exclusion is limited to the sum of the amounts that each spouse would be qualified to exclude if they had not been married (IE $250K).

put another way if I'm correct about the use of the home as a principal residence your sale in 2020 does not disqualify her from using her using the exclusion on her sale.

M

Mike9241Answer

what i can't answer is if there are any issues with claiming Michigan as a principal residence for real estate tax purposes since it seems

you are saying your spouse lived in and owned the Indiana residence from 2003 until sold in 2021 and you never occupied it as a principal residence for any 2 out of 5 years before its sale

you are saying you lived in and owned the Michigan residence from 2012 until sold in 2020 and your spouse never occupied it as a principal residence for any 2 out of 5 years before its sale

the rules for a married couple to take the $500,000 exclusion on their principal residence is that BOTH must occupy it for 2 out of 5 years before sale and one of you must own it for 2 out 5 years before the sale.

since I think you're saying each had a separate residence that they occupied as detailed above, only you would have been entitled to claim up to a $250K exclusion on the MI home. in the same context your spouse is entitled to claim up to a $250K exclusion on the sale of the IN home

section 121 of the code and regs states that if each spouse sells a home and each meets the ownership and use tests on their principal residence and has not used previously use the exclusion on the sale of their home within two years of the current sale of their home, each spouse can exclude up to $250K of gain on his own home. since both spouses do not both meet the use test for either residence, the allowable exclusion is limited to the sum of the amounts that each spouse would be qualified to exclude if they had not been married (IE $250K).

put another way if I'm correct about the use of the home as a principal residence your sale in 2020 does not disqualify her from using her using the exclusion on her sale.

J

jamesyliu1210Author

I lived in Michigan house from 2012 – 2020 and my wife lived in Indiana house at same period. However, we jointly owned both homes (title/property deed has both of us).

N

NCPERSON1

look at worksheet 1 on page 7 of Publication 523: (first section about married - filing joint - over to the right)

https://www.irs.gov/pub/irs-pdf/p523.pdf

If you’re not eligible for the maximum exclusion limit, then you should…

Determine if either spouse is eligible for the full limit as a single person.

why aren't each of you eligible for a $250,000 exclusion? if you were each single, why wouldn't you each meet all the required tests?

J

jamesyliu1210Author

thanks.

I lived in Michigan house from 2012 – 2020 and my wife lived in Indiana house at same period. However, we jointly owned both homes (title/property deed has both of us). Plus, we file our TAX 1040 married jointly.