Investors & landlords

Home 2 could qualify for partial exclusion because of job change, however the exclusion can only be used once every two years per taxpayer. 

3.     Normally the sale of the rental would be reported in the rental section only HOWEVER this will not address the exclusion to capital gains (since the program will only see this as sale of rental and not eligible for the exclusion to capital gain).  You don't enter the sale in more than one section in TurboTax. 

With that said, enter the information (2024 income and expenses) for the rental and select that it was converted to personal use. Do the same for any additional assets entered for that rental. 

That takes the rental off Schedule E. 

Continue and report the sale under 

Wages & Income 

Less Common Income

Sale of Home (gain or loss) 

(which sounds like that is what you did) 

You would have adjusted the basis by adding the remaining value of the assets (if there were any) and subtracting any depreciation for the one year of rental. 

Home two sale would also be entered under 

Wages & Income 

Less Common Income

Sale of Home (gain or loss) 

When entering the sale, the program asks if there was or will be a second sale within two years. Since you did sell both within two years, you would select "Yes" and continue. In this situation the program will not give you an exclusion to gain for both sales. 

4.     Home 2 is not a second home. The exclusion is not offered on second homes. Home 2 is your "other primary home". 

Each home would qualify as your main home, but the exclusion can only be taken once every two years.

5.     Since you would need to split the exclusion 50%, (because you each own 50% of both properties) and the total gain is not more than the limit, there would be no advantage to you filing separately. Additionally, filing separately can eliminate certain credits you might be eligible for. 

Example- You made 90,000 on home 1 and 120,000 on Home 2. 

Home 2 will only get partial exclusion, but regardless, for the example lets say the entire 120,000 is eligible. 

If you filed separately, and each owns 50%, Taxpayer would get 45,000 exclusion on Home 1 and Spouse of Taxpayer would get 60,000 on home 2 resulting in 105,000 exclusion.

If you filed jointly, and home 2 was qualified, you would claim the exclusion on home 2 resulting in 120,000 exclusion. 

AGAIN, home 2 will be only partial in your situation.

Since the gain is not the same on both homes, claiming 50% of the higher and 50% of the lower will be less that 100% of the higher gain. 

6.     Filing separately is not advantageous to you, so splitting rentals would not be necessary . 

According to the IRS:

“You may take the exclusion, whether maximum or partial, only on the sale of a home that is your principal residence, meaning your main home.”

“If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.”

“You can meet the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event.”