Can my home sale be excluded from gain TAX?

[jamesyliu1210]

I and my wife had lived in two different states due to employment. First home is at Indiana which has been primary/principal residency since 2003. Then husband moved to Michigan due to job change and bought second home in Michigan in 2012. For property TAX reason, we had Michigan home as Principal Residence Exemption (PRE) and changed Indiana home to non-homestead deduction (nonpricinpal home) (per request of Michigan Dept of Treasure). We have been filed tax as “married jointly”.

1. We sold the Michigan home in October, 2020,  (bought another home at same time in Michigan). This home sale gained $200,000.
2. We sold Indiana home in August, 2021 (wife retired). This home sale also gained $200,000.

Summary: Both Indiana and Michigan homes meet the IRS exclusion requirement of self live in the past 2 of 5 years and gain is not over $500,000. They both for self-live, NOT for rental. BUT Indiana home is not principal home (no Homestead Deduction and pay double property TAX).

My questions:

2). Can Indiana home sale gain be excluded from long-term gain TAX?

Or any exclusion for my Indiana home sale?

[Mike9241 · Accepted solution]

what you have not made clear is who lived in each house during the period of ownership.

if H lived in the MI house but not W. then he would only be entitled to $250K exclusion.  and the if only W lived in the IN house she would be entitled to a $250,000 exclusion

for a married couple to qualify for the full $500,000 exclusion on 1 principal residence, either spouse may meet the ownership test, but both must meet the use test. if both spouses don't meet the use test, the allowable exclusion is limited to the sum of the amounts that each spouse would be qualified to exclude if they had not been married.