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Level 2
posted Jan 20, 2025 9:35:52 AM

Home sale cap gain exclusion, “domicile” vs “actual use”

I’ve read the rules & tests for calculating the required 2/5 years, but I may be a gray zone.

2015:

Living FL.  My parents become ill, so I sell my FL home and buy a home to be near them in TX, but I did not change FL domicile elements like voting, driver's license, car insurance, Fed tax, PObox.

2016-present:

I had no job, bank account, home or apt in FL and did not set foot in the state.

I work from and live full-time in the only home I own, in TX.

My private med insurance, Medicare & SS address is my TX home. My doctors are in TX.

2024:

I finally get around to formally changing domicile from FL to TX on Jan 1st, 2024.

2025:

I am considering selling my TX home this year. Disregarding any other implications, do I meet the Fed test of living in my home for 2 of the last 5 years?  Is it correct that you can include the time you lived in a home before changing your domicile as long as you meet the ownership and use requirements, which I clearly do?

0 3 2211
3 Replies
Level 15
Jan 20, 2025 11:00:40 AM

@RueDelaMuse , 

section 121 says :

(a)Exclusion

Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

(b)Limitations
(1)In general

The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.

(2)Special rules for joint returns In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
(A)$500,000 Limitation for certain joint returns Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—
(i)
either spouse meets the ownership requirements of subsection (a) with respect to such property;
(ii)
both spouses meet the use requirements of subsection (a) with respect to such property; and
(iii)
neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).
(B)Other joint returns

If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.

(3)Application to only 1 sale or exchange every 2 years

Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.

 

Summary of all this  is that  once you satisfy the  ownership and use requirement  ( plus  only one  every two years ),  you are eligible.  There is no requirement for domicile. The state may however require that.

 

Does this answer your query ?   Is there more I can do for you ?

Level 2
Jan 21, 2025 8:23:27 AM

Thanks pk!

That's what I thought but it's a potentially hefty tax exposure so I appreciate the reply.

Level 15
Jan 21, 2025 8:35:04 AM

Principle residence is where you actually live most of the time.  It can be different than your "domicile" depending on the facts and circumstances.  

 

However, I would say you have been domiciled in Texas since 2016.  Again, it's a combination of all facts and circumstances, and the fact that you sold your FL home, never returned to FL, and changed your doctor and other important relationships, establishes a Tx domicile more than failing to change your drivers license or voting.