Can I amend my tax return to disclaim a primary home sale partial exclusion?

[manchotroyal]

My husband and I bought a second home in 2020 so that I could take a job in a different state. We sold the home in 2022 due to a job change back to the original state, and we were able to exclude the very small capital gains because I had lived there for over 2 years. We are now considering selling our current house, which we have owned for 10 years, since my husband now has a new job over 50 miles away, and I can work remotely from there. However, it has been only 9 months since we sold the second home. If we want to sell our current home and get the full exclusion, since it has appreciated a lot in 10 years, can we amend our 2022 return to no longer have a partial exclusion for the second home sale? 

[rjs]

Yes, you can do that. You will, of course, have to pay the tax on the gain from the sale of the second home when you file the amended return.

[Mike9241]

the election can be revoked at any time prior to the expiration of the three year period beginning on the due date of the taxpayers' return not including extensions. file an amended return revising form 8949 for the year of sale and not take the 121 exclusion.  however, for your current home to get the full exclusion after revoking the prior one it must have been owned by at least one of you for any 2 out of 5 years before sale and also have been occupied by both of you for 2 years out of 5 years before the sale as your principal residence. the information you provided does not make this clear. the dates of occupancy do not have to be the same. 

[Opus 17]

The problem really is that you can only use the exclusion on your "main home", the home where you live most of the time.  You probably were never actually allowed to use the exclusion on something you call your "second home" (although I do know that during the pandemic, some people moved into their vacation homes full time to get away from crowded cities).

If you did use the second home as your main home from 2020-2022, you then have to ask yourself if you used your current home as your main home for at least 731 days of the 5 years prior to the selling date (the days do not have to be consecutive, but they have to add up to more than 2 years of the past 5 years). 

[AmeliesUncle]

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@manchotroyal wrote:

 since my husband now has a new job over 50 miles away,

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*IF* the other home qualified, there may not be a need to amend.  The 50-mile rule means you can claim the exclusion again on this other home.   However, the maximum exclusion amount would be reduced, so depending on the amount of the gain, the exclusion may or may not eliminate the entire amount of gain.

However, if the previously sold home was your Principal Residence for a while, that means that this home that is about to be sold was NOT your Principal Residence the entire time you owned it.  That means your exclusion will be prorated on this home, based on the number of days it was your Principal Residence compared to the number of days you owned it.

[Opus 17]

@AmeliesUncle 

Customer states they want the full exclusion for the current home sale.

[AmeliesUncle]

Thanks, I completely missed that last sentence.  

[pk]

@manchotroyal , having read through the opinions of my colleagues @AmeliesUncle , @Opus 17  and @Mike9241  and  generally agreeing  with  the statements, I am still confused  as to the exact facts . So I will first state the situation as I understand :

1.  A & B , a married couple and filing jointly, bought property in P1 in 2012 ( 10 years ago );

2. They both used this as their main home  till 2019 .

3. They acquired a second  property  -- P2 in 2019 for use a main home of  B while working  in the vicinity.

4. Assuming that A continued to use  property P1 as main home  through present while  B used the  P2 as the main home till 2021.

5. In 2021, year end, A & B sold property P2 , for a profit and chose to exclude the "small "profit '  -- as the main home of person B, while filing jointly.

6. Person B now has moved back to Property P1 and both A & B continue to use the property as main home

7. In early 2023,  ( much short of required  2 years separation between  gain exclusions ), because of  employment changes ( > than 50 miles  move ), A & B decided to sell the property P1.

Question now is what steps can they take to claim maximum / full exclusion of gains -- up to 500,000.  Should / could  they amend the earlier 2021 return to change  " main home" recognition for the Property P2 ?

Could you please confirm that the above scenario essentially describes the facts as they stand today ?   Have you already sold the  property P1 or are just considering sale ?

My initial struggle  is  how to avoid  perjury  implications -- I say this because in my  view  a claim of use  i.e. used as second home or main home  is mostly not a choice / election -- it is a fact.   You either used it as your main home  or you did not .   Of course there are nuances  to this .    Having claimed the property as you main home  ( especially  if for both  Spouses   ) and now changing that this was not so  -- is either a new perjury or an old perjury  ).

Therefore I am asking for more information.  And also perhaps you need professional tax advice with all facts laid out.

May be other have  different opinion on this .

I will await your answers and circle back .

pk

[Opus 17 · Accepted solution]

@pk good analysis.  Under the facts as given (not completely clearly) I think it is at least possible that house #2 was spouse A's main home for 2 years while spouse B remained living in house #1.  Under that circumstance, the following is possible without implicating any false statements (maybe) being made.

@manchotroyal 

Re-reading your original question:

If spouse A lived in the second home for more than 2 years, and owned the home at least 2 years, then spouse A is allowed to use their personal exclusion of $250,000 when selling the home (but not the $500,000 exclusion that would apply to both spouses, because both spouses did not use the home as their main home.)

In that case, then when you go to sell the first home this year, spouse B may claim a full $250,000 exclusion without amending the 2021 return, because spouse B did not use their exclusion in 2022.

However, in order to claim the full $500,000 exclusion in 2023 for spouses A and B, spouse A must file an amended 2022 return to remove the previous exclusion and pay the tax.  Also, spouse A can only use their exclusion on the original home (selling in 2023) if they lived in the original home as their main home at least 731 days of the 5 years prior to the selling date, after deducting the time that spouse A lived in the second home as their main home. 

In other words, each spouse considers their $250,000 exclusion separately.  If we are correct that spouse A lived in the second home while spouse B remained in the first home, then if they sell home #1 today, spouse A can claim a 9/24ths exclusion ($93,750) using the hardship rule, while spouse B can claim a 100% exclusion ($250,000) using the 2 year/5 year rule, without having to amend 2022.  If the gain is more than $343,750, then spouse A would have to file an amended 2022 return to remove the exclusion (or pay the tax, depending on how much gain their was in 2022 on house #2 compared to the gain today on house #1.)

[manchotroyal]

I appreciate everyone's input, though the question is moot because we have decided not to sell our house due to the high transaction costs/poor interest rate environment.

Opus 17's summary of the facts is accurate, and I apologize for any confusion caused by my original post. When I entered the sale of the second home in TurboTax last year, there was a worksheet that treated the spouses separately and calculated what portion of the $250,000 individual exclusion each spouse could claim for the sale based on length of residence. It only allowed us to exclude $250,000 in gains since only one of us lived there (husband's exclusion was 0/24 * $250,000). So it does seem like each spouse is treated separately if the full exclusion cannot be claimed. However, to avoid having to amend any taxes, we are going to wait until at least 2 years after the sale of house 2 before selling house 1. Thanks, Opus 17 and everyone else who took the time to respond!