Both houses would meet the 2/5 years requirement, would that mean we wouldn't pay capital gains under $500k?
It depends. You would only be able to exclude the gain on one home if you both owned the two homes and they both were recently sold. There are a few parts to the gain exclusion on the sale of a home:
That gain on the sale is excluded up to $250,000 ($500,000 joint) as long as:
- You owned the home
- It was your main home for two years or more within the five years leading up to the sale.
- You waited at least two years between selling your primary home and excluding your first $250,000 or $500,000 from taxes. In other words, you may buy and sell as many primary homes as you'd like, but you'll only get this tax benefit once every two years.