Adjusted Basis of Home

[RCNorth]

Bought a NJ Home as a Principal Residence (Main Home) in 1987.  Postponed Gain of $300,000 on Form 2119.

Bought Second Home in Florida in 2009.  In 2024, want to convert Second Home into Principal Residence (believe all time and other requirements will be met).

Questions:  If I sell the NJ Home after its status changes to a Second Home, will I have to apply the Postponed Gain to this NJ Home OR can the Postponed Gain await the sale of the Florida Home which has now become the Main Home?

[rjs]

I assume you mean that in 1987 you sold a previous home, bought a home in New Jersey that is still your main home, and postponed the gain on the previous home.

The postponed gain stays with the home that is the "new residence" in Part III of the Form 2119 from 1987. That Form 2119 establishes the basis of the home that you bought in 1987. That will be the basis when you sell that home (possibly plus subsequent improvements). As far as the basis is concerned, it doesn't matter whether it's still your main home when you sell it. You cannot transfer the postponed gain to a different home.

[RCNorth]

First, thank you for a quick response.

Second, to be clear, then upon the sale of the NJ Home:

     1.  The Adjusted Basis must reflect the "Gain Postponed" from 1987, regardless of whether it is a Main Home or a Second Home?

     2.  If the NJ Home is no longer the "Main Home", then the $500,000 IRS Section 121 Exemption is lost for use on this Home?

Third, the IRS Section 121 Exemption would then not be available unless and until it can be applied to the sale another Home once that Home becomes the new Main Home and has been lived in long enough to meet the Principal Residence, Ownership and Occupancy requirements?

[Mike9241]

   1.  The Adjusted Basis must reflect the "Gain Postponed" from 1987, regardless of whether it is a Main Home or a Second Home?   YES

     2.  If the NJ Home is no longer the "Main Home", then the $500,000 IRS Section 121 Exemption is lost for use on this Home?

Third, the IRS Section 121 Exemption would then not be available unless and until it can be applied to the sale another Home once that Home becomes the new Main Home and has been lived in long enough to meet the Principal Residence, Ownership and Occupancy requirements?

***************

as to the NJ home which you currently own and is your principal residence. Within 3 years of it ceasing to be your principal residence you must sell it to take advantage of the home sale exclusion. it does not matter that it is not your pricipal residence on the date of sale. Since you meeet the ownership test the only other rule to take the home sale exclusion is that the home sold must have been your principal residence for any 2 years in the 5 year period before the sale. The full exclusion can only be used once every two years (2 years from date of sale of previous principal residence). As a warning, do not wait until the last minute to sell the NJ home. There are many situations where closing can be delayed or even falls through and then you will not meet the 2 in 5 year occupancy test and possibly lose out completely on that $500,000 exclusion. 

[RCNorth]

Thank you for your rapid response and clarification.

Alas, since much time is being spent in Florida, there is a much shorter time period available to meet the two years out of five years rule once relinquishing the NJ Home as a Main Home.

Leaves lots of decisions yet to be made.

Thanks again.