Married Filing Jointly—How does Capital Gains Exclusion when one qualifies for primary residency on joint property?

[LauraA4]

Hello, 

Married filing jointly couple own Primary Residence in NY jointly and residence #2 in FL jointly. If one of them changes residency to FL for required period before selling #2 FL property and it qualifies as primary residence for them, how is the Capital Gains Exclusion calculated? and what timeframe would they need to apply it again in NY, assuming the FL resident changes back to NY residency? 

Thanks!

[MaryK4]

For the exclusion for gain on the sale of a primary residence; if you file a joint return, both spouses must meet the ownership and residence tests but you file separate returns for the year of the sale, you would only look to the spouse which is claiming the exclusion.  For the second sale, the exclusion can only be claimed once in a two year period to meet the lookback test and all other requirements must be met- so once again, you have to make sure you qualify and if filing separate might be helpful (you should definitely plan on spacing the sales so the timing is correct).

[sledteam]

After reading a bunch of the various comments on this subject, i am confused with this statement saying you need to file seperately... I am reading it if one partner in the marriage doesnt meet the use test.. then you can still file jointly but only recieve the 250k exclusion and not the 500k...  

are you saying we would need to file married but seperately?  this doesnt make sense .. thx for any clarifications on this. 

[NCperson]

@MaryK4 that makes no sense.  Can you please reference a link that requires filing Separate? Why would limiting the exclusion to $250,000 require a Separate filing? 

[sledteam]

not sure how to do a link... but all i saw was this post .. not sure if I read it right.. or even if the person is correct or not..

 MaryK4

Employee Tax Expert

 

For the exclusion for gain on the sale of a primary residence; if you file a joint return, both spouses must meet the ownership and residence tests but you file separate returns for the year of the sale, you would only look to the spouse which is claiming the exclusion.  For the second sale, the exclusion can only be claimed once in a two year period to meet the lookback test and all other requirements must be met- so once again, you have to make sure you qualify and if filing separate might be helpful (you should definitely plan on spacing the sales so the timing is correct).

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[NCperson]

@LauraA4  please review this link and specifically page 8.

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

note that in the chart under "married filing joint", over to the very right it states: 

"Determine if either spouse is eligible for the full limit as a single person"

Therefore each spouse must meet the residence and ownership requirements so that each can qualify for the maximum $250,000 exclusion.  There is no need to file Separate.