Sale of Primary Residence and Reside in a Vacation Property in Different State

[SCRTP]

My wife and I recently retired.  We'll be selling our primary residence in NC and living out of our secondary residence, a condo, in SC.  Are there requirements we must meet to remain in our secondary residence for a length of time to avoid secondary residence taxes when we sell it?  Is there also a benefit to claiming residence in SC and remaining in the state for a specific length of time?

[K M W · Accepted solution]

It is possible to exclude some/all of the gain on the sale of both the house you are selling in NC, as well as the house you will be selling in the future in SC, but you need to meet the rules of what is called the "Section 121 Exclusion". If the Section 121 exclusion rules are met, you can exclude up to $250,000 of gain from the sale of your personal residence ($500,000 if married filing joint) from your income . These rules are found in IRS Publication 523, located here:  IRS Publication 523 . Details about the Section 121 exclusion are below:  

According to this Publication: to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

It sounds like the sale of your NC home will be first - so as long as you have owned that house for at least 2 of the last 5 years, and you have lived in it for at least 2 of the last 5 years, and you had not excluded the gain from the sale of another home within the 2 years prior to the sale date of the NC home, you can take the Section 121 exclusion.

With respect to the SC second home, you would be able to take the Section 121 exclusion on that home as well, provided you meet the rules as listed above.  So, you would have to have owned it and lived in it for at least 2 of the last 5 years from the date you are selling that home - AND, you cannot sell it within two years from the date you sold the NC home.  So, for your situation, you need to make sure you keep track of all those dates to make sure both homes meet the rules in order to exclude gain from the sale of each of these residences.

[ByNels]

We relocated our permanent residence on January 1, 2024 from mIllinois to our second home in AZ.

During 2023 we unsuccessfully tried to sell our IL home which was our primary residence for over 20 years.

We continued to market the IL intermittently during 2024 and finally sold it in the Fall of 2024. The gain on the sale of the IL home was $247,000. How is this transaction to be reported using TurboTax Premier.

[RobertB4444]

It was never a rental home and was your primary residence up until you moved.  So you still get the exclusion for the sale of a primary residence.

In TurboTax go to the wages and income section of your federal return and scroll all the way down to the bottom section 'Less Common Income'.  Click start next to "Sale of Home (Gain or Loss)" and enter all of the information here.

As long as you didn't make a profit of more than $500,000 on the sale then you won't owe any taxes.  If you made more than that then congratulations!  But also you may owe some taxes on the sale.

@ByNels