1. The Adjusted Basis must reflect the "Gain Postponed" from 1987, regardless of whether it is a Main Home or a Second Home? YES
2. If the NJ Home is no longer the "Main Home", then the $500,000 IRS Section 121 Exemption is lost for use on this Home?
Third, the IRS Section 121 Exemption would then not be available unless and until it can be applied to the sale another Home once that Home becomes the new Main Home and has been lived in long enough to meet the Principal Residence, Ownership and Occupancy requirements?
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as to the NJ home which you currently own and is your principal residence. Within 3 years of it ceasing to be your principal residence you must sell it to take advantage of the home sale exclusion. it does not matter that it is not your pricipal residence on the date of sale. Since you meeet the ownership test the only other rule to take the home sale exclusion is that the home sold must have been your principal residence for any 2 years in the 5 year period before the sale. The full exclusion can only be used once every two years (2 years from date of sale of previous principal residence). As a warning, do not wait until the last minute to sell the NJ home. There are many situations where closing can be delayed or even falls through and then you will not meet the 2 in 5 year occupancy test and possibly lose out completely on that $500,000 exclusion.
