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George Saenz, the Tax Talk columnistJuggling the sale of a 2nd house

Dear Tax Talk,
I bought a new house in 2004 and sold in 2005 due to job relocation. Although I did not stay in the house for at least two years, I did not have to pay tax on the gain (approximately $80,000) because of job relocation.

Prior to purchasing the new house in 2004, I bought a house in 2001 and stayed there as my primary residence until 2004. This house has been rented since 2004. I'm thinking about selling the rental house and want to know if I have to wait exactly two years since the sale of my new house in October 2005 (i.e., sell the house in October 2007) in order to avoid paying tax on the $250,000 gain for a single person. I did not use the full $250,000 exemption from the sale of the new house because I stayed there for only a year. Therefore, I thought maybe the two-year gap for the sales between two primary residences can be reduced to one year in this case. Thanks for your advice!
-- Maria

Dear Maria,
The general rule is that you can only exclude gain from a residence once every two years. One exception to this rule is a sale pursuant to job relocation. However, under the Internal Revenue Service regulations, the two-year rule is waived for the job relocation home and not the second home sold within two years of that sale. In other words, you have the order of the sales reversed. Therefore, you need to hold on to that second home for two years beyond the sale of the first home.

Alternatively, if you need to sell the rental property before the two years have elapsed, and the gain will be greater than the relocation home, you can amend the return for the year you claimed the exclusion on the relocation home. This way you can claim the exclusion on the rental property to maximize your tax savings.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.'s corrections policy -- Posted: Aug. 4, 2006
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