Thanks for the informative reply Ops 17, I had read some other related posts that you replied to as well around this topic. Partial exclusions and non-qualified use were the topics I was looking for. I've looked over Pub 523. Some additional info as regarding unforeseeable financial circumstances, since May we both have been without jobs and are looking to move to a new state for jobs and exiting from both these houses which are close in proximity.
It seems from my understanding we're getting hit with a bit of "marriage tax", had we known about some of these limitations would have done an ROI at the time back in Jan 2021 to compare selling and being free and clear to take new exclusions 2 years later vs keeping it.
If both houses are sold in the same year does it matter on the order they are sold in or can either house be elected to take exclusions on? If both houses are sold by the end of 2023:
I take full exclusions on home 1 (150/250k) and wife takes her portion on home 2 (100/250k & 0/250k) and taxes are paid on 100k.
We take full exclusions on home 2 (100/250k & 100/250k) and taxes are paid on home 1 on 150k. Even if unforeseen circumstances qualify, an exclusion is already taken. Unless it is happens in consecutive years then it is modified by the applicable %.
Furthermore, if this both sales happened in 2024 due to moving back to home 1 the non-qualified use would be applied. So similar to what you mentioned, let's say its for 6 months (3.5/6.5), then I take full exclusions on home 1 of ~80k and wife takes her portions on home 2 so taxes are paid on ~70k+100k. Plus isn't there some recapture that needs to be included?
Again thanks for your helpful reply!
