Sale of Residence

[LaughTrack]

My wife and I are separated but file our taxes jointly.   We jointly own 2 properties, she lives in one, I live in the other.  In 2025 we sold one property.  Do we qualify for the $250k exclusion for our capital gain, the $500k exclusion, or something else?

[Mike9241]

For either of you to take the exclusion, one of you must have owned it for any 2 out of the 5 years before the sale date. For either of you to claim the $250,000 principal home sale exclusion, it must have been that person's principal residence for any 2 out of the 5 years before the sale. date. Also, if claiming the exclusion, it can not have been used by that person for the 2 years before the current date of sale. So 

[LaughTrack]

MIke -  Thanks.  We have owned the property for more than 2 years and my wife resided it in until it was sold.

So we only qualify for the $250k exemption even though we jointly owned it (but I didn't live there.)  Is this correct?   

[DaveF1006 · Accepted solution]

You may qualify for either $500,000 or $250,000, based on who lived in the home as a primary residence. The IRS looks at how the home was used, not just who owns it or your marital status. Since you and your spouse are separated but still filing jointly, the main thing to check is whether both of you meet the use test for the home that was sold. Here are some things to consider.

The IRS explains that for a joint return, either spouse may meet the ownership test, but both must meet the use test individually to qualify for the full $500,000 exclusion.  if only one spouse meets the use test, the couple filing jointly may exclude only that spouse’s $250,000 limit. 

IRS Topic no. 701, Sale of your home