I sold my Previous primary residence in May 2021 since my Job moved from CA to TX. I want to sell my TX Primary residence, Can I sell in in 2022, How to optimize my taxes

[mruthshank]

I know i elected the 500K Tax exemption and did not pay taxes on the small Gain. Now I have to sell my TX Primary Residence , what are my option to minimize my Tax liability. I expect to more gain If is ell my TX Primary residence now.   Please advise.

[Carl]

You get no tax break on capital gains if you sold a house within the last two years that you took the "2 of last 5" capital gains exclusion on. Since you sold your CA residence in 2021 and took the exclusion on that sale, you will not qualify for even a partial exclusion if you sell your current primary residence in 2022. All realized gain on the sale will be taxable.

[Mike9241]

under IRC 121(d)(9)(D)(ii) you can revoke the previous use of the exclusion on the 2021 sale. thus you will owe taxes, and possibly penalties and interest on the previous gain. you file 1040-X and have 3 years from 4/18/2022 to amend for this reason.  

if the reason you're selling the TX residence is for a job change, health reasons, or unforeseen circumstances (there are rules and conditions that have to be met to use any of these) but then you can keep the exclusion for the 2021 sale and get a partial exclusion on the TX sale (lesser of (a) days owned (b) days used as main home or (c) days between sales divided by 730 times $500K if married or $250K if not).  if you qualify for the partial exclusion - see a tax pro to go over your taxes for both years to see what is best

[Carl]

@Mike9241 help me understand here.

I've read through the IRC, and personally I find the pubs much easier and simpler to interpret. I can't find any exception on the 2 year rule where if you've taken the exclusion within the 2 years preceding the sale, you are allowed to take it again. Being that the CA property was sold in 2021, I don't see how one can qualify for even a partial exclusion on a sale in 2022. I can't find anything excepting one from that "2 prior years" rule. Maybe I'm not interpreting or understanding something correctly in the IRC? Thanks.

[Anonymous_]

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@Carl wrote:

....Maybe I'm not interpreting or understanding something correctly in the IRC?

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You have to read the applicable regulations.

Treas. Reg. §1.121-2(b) limits the application of Section 121 to only one sale or exchange every two years except as otherwise provided in Treas. Reg. §1.121-3 (which provides for reduced exclusions). 

Also note that the publications are not authoritative and can only be relied upon, in many instances, to reduce or eliminate penalties if strictly followed by taxpayers.

[Mike9241]

@Carl under that code section, you are allowed to revoke the previous election if done timely.  therefore, if the taxpayers revoke taking the original exclusion they would be eligible to take the full exclusion on another main home provided they meet the ownership and use tests. if they are not met then the rules for qualifying for a partial exclusion come into play IRC 121(c) 

this comes from Checkpoint 1040 Quickfinder put out by Thomson Reuters

"Election to not use the gain exclusion. the election is made by reporting the sale on Form 8949. the election can be made (or revoked) at any time prior to the expiration of the three-year period beginning on the due date  of the taxpayer's return (not including extension) for the year of the sale 

the partial exclusion rules are discussed in IRS PUB 523 read page 6 

https://www.irs.gov/pub/irs-pdf/p523.pdf

[Carl]

Thanks @Mike9241 

While it doesn't say anthing explicitely on page 6 about having taken it within the prior two years, I see where it's at least implied in the worksheet on page 7, section B, step 1, item 3 where it asks for time elapsed when you last took the exclusion.

That seems to imply that if I meet the requirements for a partial exclusion, it doesn't matter if I took the exclusion say for example, 16 months before I closed on sale of the current primary residence. Would I be correct on that? Or would I still need to "undo" the prior election on the 2021 return in order to take it on the 2022 return?

[Mike9241]

put another way the partial exclusion can be taken for the sale of any main home sale where you do not meet the 2 year tests provided you meet the criteria specified for

1) job change

2) health reasons

3) unforeseen circumstances. 

for example, you could sell your main home every year (or even every month)  and qualify for a partial exclusion if say you met the criteria for a job change for each of the sales.   

That seems to imply that if I meet the requirements for a partial exclusion, it doesn't matter if I took the exclusion say for example, 16 months before I closed on sale of the current primary residence. Would I be correct on that?

that would be correct. no need to revoke prior exclusion since the current one is still based on the maximum $250/$500 prorated by the lesser of days used as a main residence or owned or days between sales.