You can't get the $500k on one of your properties. The rules say both people must have lived in the property for two years.
There are certain additional requirements a married filing joint must meet to qualify for the $500,000 exclusion. Namely, you must be able to show that all of the following are true:
- you are married and file a joint return for the year
- either you or your spouse meets the ownership test
- both you and your spouse meet the use test, and
- during the 2-year period ending on the date of the sale, neither you or your spouse excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the exclusion is figured separately for each spouse as if they were not married. This means they can each qualify for up to a $250,000 exclusion. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. For joint owners who are not married, up to $250,000 of gain is tax free for each qualifying owner.
example As for newlyweds, assume A and B plan to buy a new home together and sell the homes each lived in prior to the marriage. Neither party satisfies the ownership and use requirements with respect to the other’s premarital home. A and B have gains of $200,000 and $300,000, respectively, incident to the sales. Whether they file jointly or individually, A’s $200,000 will be fully excluded by the $250,000 exclusion, whereas $50,000 of B’s gain—the excess over the $250,000—will be subject to tax. B may not use A’s unused exclusion on B’s gain in excess of the $250,000 limit.
