My wife and I are selling our house. I’ve lived here for about 5 years, but my wife has only been here a little over a year and was added to the deed less than a year ago.
I’ve read that you don’t owe capital gains tax up to a certain amount if it’s been your primary residence for at least two out of the last five years. I know I meet that requirement, but she doesn’t. Will this affect whether we owe capital gains tax?
Thanks in advance!
Are you expecting the gains to go over $250,000?
Rian said:
Are you expecting the gains to go over $250,000?
No, it won’t be that much. I was mostly wondering if filing jointly would make a difference since she hasn’t lived here long enough.
@Hadi
If the gains are under $250,000, it shouldn’t matter.
If the gains go over $250,000, though, you might not get to exclude all of it because your wife didn’t live there for 2 years. But there’s an exception if the move was for a specific reason, so she might still be able to exclude part of it.
@Rian
For married couples, the exclusion is $500,000. Only one of you has to meet the 2-out-of-5-year rule.
Toby said:
@Rian
For married couples, the exclusion is $500,000. Only one of you has to meet the 2-out-of-5-year rule.
Actually, IRS guidelines say both spouses need to meet the residency rule to get the full $500k exclusion.
From Pub 523:
Eligibility Step 3—Residence
If you owned and lived in the home as your main residence for at least 24 months of the last 5 years, you meet the residency rule. But, for couples, each spouse needs to meet this rule individually to qualify for the full exclusion.
@Rian
You’re right, I didn’t read that part carefully. Here’s the link to the actual law:
https://www.law.cornell.edu/uscode/text/26/121
The $500,000 exclusion for married filing jointly applies if:
@Rian
I own a house in one state but mostly live in another. I don’t rent it out or anything. Just back and forth between the two. How does the IRS tell which is my main home?
tia
Clare said:
@Rian
I own a house in one state but mostly live in another. I don’t rent it out or anything. Just back and forth between the two. How does the IRS tell which is my main home?
tia
You probably have some periods each year where both places could count as your primary residence.
Toby said:
@Rian
For married couples, the exclusion is $500,000. Only one of you has to meet the 2-out-of-5-year rule.
Each spouse has to meet the requirements for the exclusion individually.
You can exclude up to $250k in gains. If your gain isn’t more than that, it shouldn’t matter how long your wife has lived there.
You each get a $250k exclusion if you meet the time requirement. But since she hasn’t lived there long enough, she won’t qualify for her part. If you both qualified, the exclusion would be $500k.
Dev said:
You each get a $250k exclusion if you meet the time requirement. But since she hasn’t lived there long enough, she won’t qualify for her part. If you both qualified, the exclusion would be $500k.
For a married couple, the exclusion is $500k as long as neither has used the home sale exclusion in the last 2 years.
@Toby
That’s not always true. To get the $500k, both spouses need to meet the residency requirement, while only one needs to meet the ownership rule.
Pub 523 says, ‘Each spouse must meet the residence requirement individually to get the full exclusion.’