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carking8604
Returning Member

CA Capital Gains - Sale of Property

Seeking input before I enlist a CPA. I am in the process of selling my primary residence and the net profit will be around $375k. As a single filer, I qualify for the $250k exemption. However, I was wed in the fall of 2020 and my spouse took that tax exemption on the sale of their own primary residence less than two years ago (in the spring of 2020). My spouse was not on this loan, nor was I on theirs. We filed jointly on our 2020 taxes. Would we still get the $500k exemption since my spouse took it before we were married?

7 Replies
MMTaxMM
Level 10

CA Capital Gains - Sale of Property

Your spouse doesn't have to have owned the house for 2 years BUT your spouse had to LIVE in the house as their main home for the 2 year period to get the full exclusion.

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carking8604
Returning Member

CA Capital Gains - Sale of Property

So it makes no difference that I’ve owned and lived in my primary residence for 5 years - because my spouse has not lived here for 2 years, the entire exemption is thrown out?

Carl
Level 15

CA Capital Gains - Sale of Property

Assuming you will file joint, here's the bottom line.

YOu will qualify for the $250K exemption since "YOU" lived in the house for 2 or more years of the last 5 years you owned it.

Your spouse will not qualify for at least one reason, possibly two reasons)

 1. Your spouse did not live in the house for at least two of the last 5 years.

 2. Your spouse sold a house that did qualify, and for which your spouse did take the exemption, within the last two years preceeding the closing date on the sale of "YOUR" house.

Now weather item #2 will be true at the time you sell your house, item #1 "will" be true if the house is sold and it was not "YOUR SPOUSE'S" primary residence for at least 2 years (730 days) prior to the closing date on the sale of your house.

Note that if every audited on this, the day count for your spouse for number of days your house was her primary residence, starts on the first day that you can prove it was her primary residence. For example, the date her home address is updated on her driver's license would probably be sufficient enough proof. But I'm no lawyer, CPA or expert on tax law. So just that one item alone may not be enough. Of course, the matter of proving it only comes into play if you're audited on it.

MMTaxMM
Level 10

CA Capital Gains - Sale of Property

the entire exemption is thrown out?

Not the entire exclusion.....just the $250k for your spouse because your spouse did not use the house as her main home for 2 out the last 5 years leading up to the sale. You still get your $250k exclusion.

carking8604
Returning Member

CA Capital Gains - Sale of Property

Thanks. Is this logic correct?

 

Example:

 

335k net capital gains, less the 250k exemption= 85k to be taxed

 

85k less $78,750 long term cap gains tax rate for filing jointly (0%)= 6250 to be taxed at 15%= 937 owed?

 

Used this chart:

 

Filing Status

0%

15%

20%

Single

$0 – $39,375

$39,376 – $434,550

More than $434,550

Married filing jointly and surviving spouse

$0 – $78,750

78,751 – $488,850

More than $488,850

 

carking8604
Returning Member

CA Capital Gains - Sale of Property

Actually, I think I'm wrong. Say our combined income is around 120k -- that would put the additional 85k cap gains in the 15% bracket, meaning we'd be liable for 12,750k. Right?

Critter-3
Level 15

CA Capital Gains - Sale of Property

TOTAL income from all sources will put you solidly in the 15% bracket. 

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