houses, newlyweds and capital gains
I have been a homeowner since 2002. I was single when I purchased
my home and since then have married. The title is still solely in
my name. My wife bought a home in 2004 and we married later that
year. I moved into her home in 2005 and now rent my home. The title
on her home is also solely in her name. If we decide to sell both
homes within the same two-year period, would we be liable to pay
capital gains on one? Even if technically both titles show a single
owner? Helpful information: We have joint federal tax returns for
2004 and 2005.
You can exclude up to $500,000 of the gain on
the sale of your home if you meet all the following conditions:
- You are married and file a joint return
for the year.
- Either you or your spouse meets the ownership
- Both you and your spouse meet the use test. (You
might not meet this test.)
- During the two-year period ending on the date
of the sale, neither you nor your spouse excluded gain from the
sale of another home.
If either spouse does not satisfy all these requirements,
which you wouldn't since you're contemplating two sales, the maximum exclusion
that can be claimed by the couple is the total of the maximum exclusions that
each spouse would qualify for if not married, and the amounts were figured separately.
a separate basis, each of you can exclude up to $250,000 of the gain on the sale
of your respective homes if all of the following are true.
You meet the ownership test (owned it for two of the last five years).
You meet the use test (used it, for two of the last five years, as your home).
During the two-year period ending on the date of the sale, you did not exclude
gain from the sale of another home.
Since you're trying
to sell two homes within the same two-year period, you cannot meet the rules that
qualify you for the joint $500,000 exclusion. Instead you need to determine if
you can compute the sales separately and each use the available $250,000 exclusion.
the sale is contemplated for 2006, you still fall within the two-of-the-last-five-year
rule for the use test. Hence you would qualify to exclude up to $250,000 in gain,
and so would your wife on your respective properties.
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