Dear Tax Talk,
My wife sold a home for $198,000 in Indiana and I was also on the deed. I bought my primary home in 2008 in Maryland for $313,000. Now, if I sell my Maryland home for $370,000, will I have to pay capital gains tax? If so, how much might that be? Thanks.
The IRS allows you to exclude all or some of the gain on the sale of your home if you meet the requirements. However, the rules for the capital gains tax exclusion on a second home sale are tricky.
In addition, there are special rules for joint returns, but first let’s go over the basics.
Individuals may be able to exclude up to $250,000 of gain on the sale of their “main home” if they meet the “ownership and use tests” and they did not exclude gain from the sale of another home during the two-year period ending on the date of the sale.
The ownership test is met if you have owned the home for at least two years, and the use test is met if you have lived in the home as your main home for at least two years. If you are married filing a joint return, you may be able to exclude up to $500,000 of gain if you meet all the requirements.
Since you are married, this is the part where it gets more complicated — especially since there are two homes involved. The special rule for joint returns is that you can exclude up to $500,000 of gain if:
- You are using the filing status of “married filing jointly.”
- Either you or your spouse meets the ownership test.
- You and your spouse both meet the use test.
- Neither you nor your spouse excluded gain from the sale of another home during the two-year period ending on the date of the sale.
However, if one of you does not meet the above requirements, then the maximum exclusion the two of you can claim is limited to the amount allowed if you were not married and the amounts were figured separately.
So this is where you will want to carefully look to see if you can each exclude up to $250,000 on the sale of the homes. You do not give me enough information to know if you both meet the ownership and use tests for both homes, so I am unable to give you a complete answer.
Thanks for the great question.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.