If a house is jointly owned by 4 people, and they all use it as principal residence, do each one get 250,000 tax exemption?

[SweetieJean]

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[CalCountry · Accepted solution]

From the IRS at:
   https://www.irs.gov/uac/IRS-Issues-Home-Sale-Exclusion-Rules

"For joint owners who are not married, up to $250,000 of gain is tax-free for each qualifying owner."

And from nolo.com at:
   http://www.nolo.com/legal-encyclopedia/how-does-the-capital-gains-tax-exclusion-apply-three-co-owner...

"As long as each unmarried co-owner satisfies the two-out-of-five-year ownership and use tests, each gets to exclude up to $250,000 of his or her share of the gain from the sale. (Married couples who file jointly can exclude up to $500,000 of their gain)."

[macuser_22]

The nature of the question almost suggests a tax avoidance scheme - put the property in 4 names so that each is under the tax limits.    If the idea is to "gift" the property to 3 other co-owners, be aware that gift tax returns must be filed for any gift over $14K and then the proceeds form that gift belong to the person that it was gifted to with no-strings-attached.   If the sale proceeds are "gifted" back to the original owner, then the IRS would say that it was never a true gift in the first place, but a scam to avoid tax.

[SweetieJean]

Interesting take.  However, the poster hasn't indicated whether these 4 people are related (such as Mom and Dad, and Child plus Child's Spouse), or whether one or more of the four were added to the deed after the original purchase.  He/she did say they all use it as principal residence.

[lloydlau2015]

Mom and Dad gifted 50% of the house to their two adult sons in 2012, proper gift tax return was filed in 2012, the house was purchased in 1989.  Only one child lives in the house as his principal residence, the other child has his own separate principal residence, so I believe the mom and dad and one child will each qualify for the 250,000 exemption, the other child may have to pay capital gain tax, the sale proceeds will not be "gifted" back.

[SweetieJean]

Do Mom and Dad still live in the house?

[lloydlau2015]

yes, mom and dad and one son all live there for the last 26 years, the older son moved out years ago, but stayed in close contact.

[SweetieJean]

Okay, then everything should be as you described it.

[sepend]

Hi Jean,

I noticed your response. Here is my question.

Does it matter to have relationship among joint owners? For example, parents, and parents' married child purchased a house together. If they all qualify the use and ownership test, they have up to $1,000,000 capital gain exclusion.

I have a case on my hand and I am doing research on it. Just not sure if their relationship will affect the exclusion rule.

Thank you

[Critter]

The ownership and use tests  have  nothing to do with the owners having to  be related.  The owners can be complete strangers and still pass the test. 

[Sadbk92]

Hello for a scenario where mother added daughter to a coop ownership certificate and the home was a primary Residence for the daughter.  How would the tax treatment be upon the sale.

Thank you

[Hal_Al]

@Sadbk92 - same as above, along as daughter was added to the certificate more than 2 years prior to the sale and lived in the home for the same 2 year requirement

[Sadbk92]

Does the daughter claim 100%? Or it needs to be split 50/50?

[DianeC958]

Since it is the primary residence for the daughter, the daughter is allowed to exclude $250,000 of gain on the sale as long as she meets the other requirements of

There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:

If the mother also meets these tests she could also exclude up to $250,000 of gain on the sale of the coop.

Link to Tax Aspects of Home Ownerhip

• Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
• Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
• Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.