The answer is contained in publication 523 on page 6, under "Does Your Home Qualify for a Partial Exclusion of Gain?" https://www.irs.gov/pub/irs-pdf/p523.pdf
You fail the 2 year look-back rule to claim the full exclusion, because even though you lived in the home more than 2 years, you used the exclusion on the previous home only 9 months ago. Because you are moving for a job change of one of the co-owners, you would qualify for a partial exclusion.
The partial exclusion percentage is determined by the shortest time:
- the number of days you owned the home
- the number of days you lived in the home as your main home
- the number of days since the last time you sold a home and used the exclusion
Turbotax will actually figure it to the day; you will need to give the date you bought the house, the date you sold it, the date you moved in, and the date you sold your previous house.
Note that since the home is co-owned by two married couples, the capital gains are reported 50/50 and each couple is entitled to a partial exclusion. Since you last used the exclusion 9 months ago, your partial exclusion will be approximately 9/24th, or 37.5% of the $500,000 limit, which is $187,500. Each couple would report half the cost basis, half the selling price, and half the capital gain.
Also note a couple of factors that will be peculiar to your situation.
1. The exclusion is calculated separately for each owner or married couple. You sold your previous home 9 months ago, so you fail the look-back test and only qualify for a partial exclusion now. However, suppose your son and his wife were not owners of that previous property and did not use their exclusion on a previous home in the past 2 years. They would qualify for a full exclusion on their half of the gain, while you qualify for a partial exclusion. On the other hand, if your son didn't move in with you until 5 months ago, they would only qualify for a 5/24ths exclusion on their half, or if your son moved out early to take the new job, he and his wife would get a smaller exclusion. This is all because the exclusion is figured separately based on each person's shortest period time of owned, lived in, or previous exclusion.
2. Suppose you have a very large exclusion on this home that is not covered by your partial exclusion limit, but you had a small gain on the sale of the previous home in 2020. You could declare this upcoming sale to be the sale you will use the full exclusion on, and then file an amended 2020 return to remove the exclusion and pay the gains tax on that prior sale.
